New AMD Same as the Old AMD

SAN FRANCISCO -- It's tough to talk turnaround when you've just told investors that sales will plunge 25% in the span of three months.

Mere survival isn't looking so certain, either.

Struggling chipmaker Advanced Micro Devices(AMD) said Thursday it expects revenue from continuing operations to be down 25% from the third quarter's $1.59 billion, suggesting a top line of about $1.19 billion.

That figure is 23% below the latest analyst consensus estimate and would imply a year-over-year drop in revenue of 33% from last year's fourth quarter.

Shares of AMD, which weren't worth much to begin with, slumped as low as $1.92 in early trading but rallied back recently to $2.15, down 5 cents.

While the magnitude of the revenue miss is another unpleasant surprise from the tech sector, it's also part of the mounting evidence that companies are realizing the global economy is bad, consumers are pulling back as the housing market continues to retreat, and there's no timetable for when things will improve.

Witness these further blemishes on Thursday:

As feared, Nokia(NOK) lowered its fourth-quarter forecast for industrywide mobile device shipments. The company said a slowdown has continued more rapidly than expected just since the company issued an update on Nov. 14.

Dutch conglomerate Philips Electronics(PHG) said it probably wouldn't make its midterm profit target, in part because its consumer lifestyle division was deteriorating. Said the company's CEO: "The downturn we see now is without recent comparison and is developing much faster and deeper than expected."

Homebuilder Toll Brothers(TOL) posted a wider-than-expected fourth-quarter loss, while essentially throwing up its hands on a forecast for 2009.

AMD's revenue warning puts a serious crimp in the comeback hopes that were buoyed by a CEO change, and more important, strong sequential revenue growth and margin expansion in quarterly results just three months ago.

And the groundwork was being laid for further progress, as the company sheds its manufacturing factories early next year and moves ahead in its so-called asset-smart skin. In addition, as my former colleague Alexei Oreskovic pointed out, the company was giving itself a virtual do-over in server chips with the recent release of its Shanghai microprocessor.

But AMD investors must increasingly wonder how the company can successfully pull through a global economic downturn that has yet to signal its low point. Last month, investment banking firm Collins Stewart noted that AMD, at the time still sticking to a flat fourth-quarter revenue projection, could see calendar 2009 revenue drop by 10%, which would generate about $700 million in operating losses next year.

Anybody think that looks a little conservative today?

AMD also said last month it had a quarterly break-even target of $1.5 billion. At current cost levels, it's now difficult to see AMD's revenue meeting that level within the next two or three quarters.

All of this leaves the new AMD looking too much like the same old AMD: A company that cannot consistently turn a profit. A change in strategic direction to focus on profitability and less on market share probably makes sense in a leaner economy, but at this point one would have to place AMD way down on the list of sure things.

Even more worrisome over the longer term, however, is that these continual losses don't come in a vacuum. While AMD has more than $1.3 billion in cash, it's also saddled with four times that amount in debt.

The odds on a standalone AMD making it through this recession without yet another cash infusion and/or a hard look at spinning off its relatively valuable graphics chip business have just gotten longer.

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