SAN FRANCISCO -- Three months after taking the helm as Advanced Micro Devices' ( AMD) new chief executive, Dirk Meyer is set to provide his first progress report. But Wall Street's attitude toward Meyer's quarterly earnings debut on Thursday is marked more by ambivalence than by great expectations. Investors realize that the real game-changers for AMD -- from new products to a radical new organizational structure -- have yet to take effect. Anything that happens before that is, effectively, history. If there's any reason to be more optimistic about AMD, it's simply that the company no longer appears in imminent danger of going out of business. The chipmaker has found a way to replenish its coffers with $1 billion in cash by hooking up with a pair of Middle Eastern government funds in its long-awaited "asset smart" deal. That transaction will separate AMD's manufacturing assets into a separate organization, a move that will eliminate its massive capital spending burden and, AMD hopes, improve its ability to challenge Intel ( INTC) in the market for PC and server microprocessors. Until the deal closes, though (something AMD hopes will happen in the first quarter of 2009), the company is in a sort of limbo, frittering away its final days in a soon-to-be-obsolete structure. Analysts can't even sketch out the operational contours of the new AMD until November, when the chipmaker is due to host a meeting and provide details about how the new structure will affect key financial metrics. "The
financial models are really for the most part out the window," says Stifel Nicolaus chip analyst Cody Acree, who rates AMD a buy. "There's a lot of impact from the spinoff and not a lot of details just yet."
In the meantime, AMD is expected to continue bleeding red ink. The average analyst expectation calls for AMD to lose 40 cents a share on sales of $1.48 billion, according to Thomson Reuters. Shares of AMD, which are down roughly 75% from their 52-week high, closed Wednesday's regular session at $3.91. With so much of AMD's new operating model still unknown, Acree says the main thing to watch right now is the top line, particularly the outlook for revenue growth in the months ahead. "The company still needs to show that they are, No. 1, executing as far as getting their products to gain and stabilize market share, and, No. 2, that there is demand for those products," he says. The prospects for overall demand are not encouraging amid the current financial crisis. On Tuesday, Intel, the world's top chipmaker, offered a less-than-reassuring update on chip demand, citing weakness in technology spending among corporations and consumers. Of course, AMD has a lot of ground to recover after the disastrous rollout of its Barcelona processor, and some investors believe the forthcoming Shanghai processor -- slated for release in the fourth quarter -- could mark the beginning of AMD's revival. The company's fourth-quarter guidance will provide the first glimpse of whether the Shanghai chip is getting traction among the major PC vendors such as IBM ( IBM), Hewlett-Packard ( HPQ) and Dell ( DELL), since many of those firms might already be expected to have placed orders for the chip. Pacific Crest Securities analyst Michael McConnell, who has a neutral rating on AMD, doesn't expect the Shanghai chip to drastically improve AMD's competitive position. Shanghai is essentially the same processor as the Barcelona chip, only with smaller transistors measuring 45 nanometers instead of 65 nanometers. "The sun has pretty much set on that architecture," McConnell says. AMD's first chance to really turn things around won't come until mid-2009, when it releases Istanbul, a six-core processor that features a new microarchitecture, McConnell says. "The next step for this company is to get a product in this marketplace that's really adding value," he says. Whether that product turns out to be Shanghai, Istanbul or some other product entirely, the engines for AMD's comeback have yet to be turned on.