AMD Vows Turnaround

The chipmaker's plan to return to profitability is short on details.
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Advanced Micro Devices

(AMD) - Get Report

wants investors to see the glass as half full. Unfortunately, the company's stock is half down in value.

At its annual financial briefing with analysts Thursday, AMD vowed to right its ship, returning its business units to profitability and fixing the delays in getting its new microprocessor out the door.

But AMD provided no details about its plans to cut costs by overhauling its manufacturing strategy, and after a year of operational missteps at the company, investors showed little faith in management's new game plan.

Shares of AMD sank to a new 52-week low in midday trading, before recovering to a less severe drop of 1.4%, or 13 cents, to $8.84.

AMD President Dirk Meyer kicked off the event acknowledging AMD's recent difficulties but insisted that the company's prospects were strong, thanks to various achievements in market share, notebook chip growth and average selling prices.

"There are times in life when you feel like the perspective of those around you is quite a bit different than your perspective," said Meyer, as he opened up the event, which took place in the

New York Stock Exchange

building.

The public is not taking the time, or is not motivated, to see what really matters, Meyer suggested.

Of course, with AMD's stock down 57% in the past 12 months, and the company continuing to bleed cash, it's not too difficult to understand where the pessimism about the company comes from.

Missing from the briefing was AMD's customary rant about rival

Intel's

(INTC) - Get Report

monopolistic practices, as if acknowledging that AMD's latest woes are of its own making.

Fred Weiss of AtlanticTrust SteinRoe said there was not enough meat in the presentation to change his bearish view of AMD.

"They had nothing to talk about, except that they scheduled an analyst meeting," said Weiss, whose firm currently has a position in Intel but not in AMD. And he said AMD's financial outlook was based on optimistic assumptions, including a 15% unit growth in the PC microprocessor market in 2008 and continued share gains against Intel.

Executives said the company would return to operating profitability in the third quarter of 2008 and be profitable on the operating income line for the full 2008 year.

That's actually slightly better than the average Wall Street expectation, which calls for an operating loss of $124.7 million in 2008.

But company executives were less specific about the bottom line, declining to put out a time frame for net income profitability. AMD has lost $1.6 billion in the first three quarters of 2007.

AMD also said it would grow the topline faster than the market in 2008, while forecasting gross margins to rise to a range of 46% to 50% for the year.

In the long term, AMD said it expects gross margins to increase to between 50% and 55%.

FTN Midwest Securities analyst JoAnne Feeney attributed the negative reaction to AMD's strategy briefing to the fact that the company did not discuss its plan to outsource a greater portion of its chip manufacturing, although she believes the company said as much as it could under the circumstances.

"AMD is in a situation where they need to come through with the goods before they can defeat the skepticism that's out there," said Feeney, who has a buy rating on AMD.

For the short term, AMD reiterated its fourth-quarter guidance, which calls for unit shipments to be up and gross margin to increase sequentially from the third quarter's 41% level.

"That's a big reaffirmation," said Feeney, given that in the time since the initial guidance, AMD's Barcelona server chip turned out to be in trouble.

AMD acknowledged earlier this month that a bug in its new quad-core processor has delayed general availability of the chip for servers and has resulted in a performance hit on the desktop versions of the chip.

AMD said it will have clean versions of the processors shipping in the first quarter, although it looks as though it won't begin large shipments of the processors until around the end of the quarter.

The chipmaker has also been faulted for releasing initial versions of the processor with relatively low clock speeds, particularly compared with the competing chips from Intel. AMD said the faster, 2.5Ghz version, which was initially expected in the fourth quarter of 2007, is now expected to be available in the second quarter of 2008.

Given this mismatch, it was not surprising that AMD touted value for mainstream PC buyers, rather than bleeding-edge performance, as the key to the company's success going forward.

"The prevailing wisdom is wrong," said AMD President Meyer. "The lion's share of the market opportunity is not looking for the highest performance

microprocessor," but rather features like value and energy efficiency.

AMD plans to tackle this market by leveraging the technology acquired from graphics chipmaker ATI to create chip bundles, or platforms, which provide key components for PCs.

In addition to its recently launched Spider platform for consumers seeking a high-end machine, AMD said it was readying versions for corporate PCs, mainstream desktops and notebooks.

And AMD's graphics head Rick Bergman said he expected that the ATI business will regain the top spot in the market for standalone notebook graphics processors in the summer of 2008, after being unseated by

Nvidia

(NVDA) - Get Report

.

New graphics chips, along with AMD's new quad-core microprocessors, mean that AMD is positioned for growth, said AMD executives. And the company announced a forthcoming class of new panel processors designed for digital TVs.

CEO Hector Ruiz lauded AMD's management team for dealing with adversity, noting that the company has been quick to fix various past problems, such as its falloff in shipping product to channel partners earlier in 2008.

Describing himself, as "ticked off," Ruiz asked, "How in the hell could anyone conclude that our company is worth 40% less than just a few weeks ago?" he asked.

Wall Street is still waiting for him to provide the answer and prove it wrong.