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AMD swings to a loss in Q4

Blame wafer bakers, discrete graphics – or both

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Despite issues with getting chips from both GlobalFoundries and Taiwan Semiconductor Manufacturing Corp last year, AMD was able to get a modest bump up in sales in the fourth quarter thanks in large part to its hybrid CPU-GPU chips for PCs, with sales up 2.5 per cent to $1.69bn.

But a write-off of $208m relating to AMD's wafer baking spinoff, GlobalFoundries, plus a $98m restructuring charge and various other downward tweaks to the books, pushed AMD to a loss of $177m in the quarter. That compares to a gain of $325m in the year-ago period.

Had AMD not written off its investment in GlobalFoundries, which now stands at an 8.8 per cent stake worth $277m as 2011 ended, it would have been barely in the black. AMD wrote down the GlobalFoundries investment because of the fab's delay in building a chip plant in its home country of Abu Dhabi, and other issues that AMD did not elaborate on.

AMD's Computing Solutions group, which makes processors for servers, desktops, and laptops, posted $1.31bn in revenues (up 7.2 per cent), with operating income of $165m (up 81.3 per cent).

In Q4, AMD's "Interlagos" Opteron 6200 processors, announced in November after a painful ramp, accounted for more than a third of AMD's server-processor shipments and sales. Overall server-chip sales, which include the new "Valencia" Opteron 4200 processors as well as prior generations of CPUs, experienced a single-digit average selling price decline in the fourth quarter, which ate into the ramping chip volumes.

This was the second quarter that AMD had sequential growth in its Opteron line, and in both quarters sales were up in the double digits, said Rory Read, AMD's new CEO, in a conference call with Wall Street analysts to go over the numbers. "We believe that we gained server share in the quarter, and demand remains strong," Read said.

On the client side, AMD said that its "Llano" accelerated processing unit – APU hybrid CPU-GPU processors – helped drive record client revenue, thanks to increasing supply, and the companion "Brazos" APU chips for laptops were called "the most successful platform in AMD's history," according to the CFO Thomas Seifert's commentary (PDF). AMD has sold more than 30 million of its APU processors to date, and Read said that its APUs were in five of the top six best-selling systems in the retail channel in North America during the quarter, and that on Black Friday, AMD believes it accounted for an astounding 70 per cent of the PCs sold that day in the retail channel.

By the way, nearly all of the notebook processors that AMD sold in Q4 were APUs, and APUs now account for more than 60 per cent of PC chip shipments for the company. Desktop shipments were impaired somewhat during Q4 because of a hiccup in 45-nanometer chip deliveries, which Read said had been largely fixed.

Overall, increasing server shipments (despite declining ASPs) and the move to APUs helped boost AMD's overall ASPs in Q4.

Read said that AMD's low-power "Trinity" APU is still on track for delivery in the middle of the year and would be a player in the "ultrathin" notebooks. (He did not say Ultrabook, which is an Intel trademark.) And Mark Papermaster, AMD's newly minted CTO, piped up on the call to say, in reference to the possibility of low-powered servers from Intel and the ARM collective, that the investments AMD is making in Trinity "are directly applicable to servers."

AMD said that its discrete graphics business had weaker-than-expected demand, with sales of $382m, down 9.9 per cent year-on-year. Operating income for the Graphics group fell by 60.3 per cent to $27m.

Read also said that the delays in the shipment of disk drives aimed at PCs due to the flooding in Thailand had an impact on PC sales and therefore discrete graphics that tend to be picked up by high-end PC users. AMD expects APUs to eat into this business over the long haul, but Read said discrete GPUs were "still a good business."

The important thing for AMD at this point is that the 32-nanometer ramp at GlobalFoundries is improving, with a factor of 1.8 boost in chips coming out of the fab in the fourth quarter compared to the third quarter, according to Read. Siefert said that based on expected demand and expected supply of chips from GlobalFoundries and TSMC, AMD did not expect to be supply-constrained.

For the full year, AMD had $6.57bn in sales, up 1.1 per cent, with operating income of $368m, down 56.6 per cent, and net income of $491m, up 4.2 per cent. The Computing Solutions had sales of just a hair over $5bn for all of 2011, a rise of 3.8 per cent, while Graphics stomached a 5.6 per cent decline and operating income was cut by two-thirds.

AMD expects to post a sequential decrease in revenues in Q1 2012, ranging from down 5 per cent to down 11 percent. ®

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