When Intel (INTC) made its earnings announcement for the last quarter, the information that stood out in investors' minds was that the company's management said they were seeing a bottoming of the PC market. Intel's smaller competitor AMD (AMD) has a different view.
AMD is now a shadow of what it was three years ago, when it was gaining market share in the PC and server markets and believed its R&D could create chips substantially better than Intel's. But Intel would have none of it. By dropping its prices, it squeezed AMD's margins.AMD was in no position to fight that fight. It took on $5 billion in debt when it bought graphics chip company ATI. AMD's losses and debt service obligations have caused it to spin out its manufacturing operation in the hopes of keeping the parent company in business. But it cannot do much more to cut costs.
During AMD's earnings call yesterday, the company painted an unpleasant picture. According to Reuters, "I don't know how anybody can say that we hit bottom given the continued uncertainty that we have in the macroeconomic climate," said AMD Chief Executive Dirk Meyer. The firm reported a $416 million loss on $1.18 billion in revenue.
The forecast, if true, is more troubling for AMD than it is for Intel. The larger company has the balance sheet and cash flow to make it through a long recession. AMD probably does not.
Douglas A. McIntyre is an editor at 24/7 Wall St.