AMD in 2005: Coming Out of Intel's Shadow?
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Looking Forward
In 2004, AMD released a series of microprocessors for corporate users.
It introduced new manufacturing techniques and pushed aggressively a new
technology, which put several microprocessors on a single chip. |
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In early 2005, AMD announced that its new chip, Turion 64, would be available in
notebooks by June 2005, to compete with Intel's Centrino and Transmeta's Astro.
AMD believed that Turion would usher in a new era in mobile computing. Turion 64
mobile targeted highly mobile business professionals and consumers who demanded
reliable, high-performance notebook PCs with long battery life, outstanding
wireless compatibility, rich graphics and enhanced security.
One AMD official commented ,
"AMD Turion 64 mobile technology represents freedom and mobile performance
personified. We expect this new product family will set a precedent for mobile
PCs in the same way that AMD Opteron did for servers".
In 2004, AMD gained about one percentage point of the microprocessor market,
bringing its share to 15.8% . AMD was expected to book a record $5.1 billion in
full-year sales as well. The stock, at $21.73 by December 2004, had doubled in
value since September 2004. AMD had laid out ambitious plans for its future, 10%
of the low-end server market by the end of 2004, 30% of the corporate PC market
and 50% of the consumer PC market by 2009. not withstanding these ambitious
plans, AMD realized Intel could not be underestimated. In 1999, AMD had been at
the cutting edge, having unveiled Athlon, which was faster than Intel's
comparable processor at the time. Then, Intel had caught up and eventually
leapfrogged AMD in processor performance. AMD started losing money.
Intel was not the only threat to AMD. South Korea's Samsung Electronics had been
spending heavily on chip-factory equipment and manufacturing capabilities. Texas
Instruments, which competed against Intel in cellular phone chips, was at work
on a $3 billion advanced factory of its own.
For AMD, 2004 had been a good year. The company had gained market share from
Intel and seen its stock price and cash reserves go up. But 2005 had begun on a
bad note. On January 10, the company announced that earnings from the fourth
quarter of 2004 would be much below Wall Street's expectations. As soon as this
announcement came, AMD's stock price tumbled 25% to about $14 from about $ 25 at
the end of 2004 (See Exhibit 3).
AMD had to lower its earning because Intel reduced its flash memory chip prices.
Intel earned only about 7% of its total revenues from this segment, whereas AMD
earned about 50% of its revenues from flash memory chips. Shortly after AMD
announced weak earnings, Intel indicated strong fourth quarter 2004 earnings.
This further hurt AMD's stock.
Ruiz believed that his company's flash memory performance was "freaking dismal"
. He also indicated he was strengthening AMD's flash memory business. AMD lost
$30 million on sales of $1.26 billion in the last quarter of 2004. This happened
despite processor sales rising 26 per cent over the corresponding period in
2003.
- Ruiz
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