AMD hit revenue guidance for the final quarter of 2012, but the numbers were still dismal. Revenue was $1.16 billion, down 9% sequentially from $1.27 billion, and down 32% from $1.69 in the year-earlier quarter. Guidance is for Q1 2013 revenue to be down around another 9%. Net income was $473 million in the red on a GAAP basis, and even on a non-GAAP basis was $102 million short of break-even.
Despite that AMD CEO Rory Read were surprisingly upbeat about 2013, predicting the a return to profitability in the second half. Of course we've heard that kind of optimism from AMD before, only to be let down. Are AMD's claims of a turn-around ahead credible?
AMD is currently known for making CPUs that compete with Intel's for personal computers (notebooks and desktops) and servers. In addition AMD makes stand alone graphics chips (GPUs), competing mainly with NVIDIA. AMD has not done well in the server space these last five years, and the PC space has started to shrink, in part because tablets and smartphones have become more popular and mostly use ARM based CPUs, rather than the more capable and power-hungry x86 coded chips made by AMD and Intel.
In 2012, in an effort led by the remarkable vice president of global business units Lisa Su, AMD started to re-target its intellectual property development towards growth sectors. The acquisition of SeaMicro acted as an entry to the dense server space, where AMD's graphics expertise could eventually help with highly-parallel computations, and Opteron technology is a better fit than Intel's server chip designs. In addition, AMD has announced it will use ARM technology when appropriate in this field. Although the complete new system will not be available for some time, Rory reported that Q4 SeaMicro revenue grew.
A second major line of attack is embedded SoC chips. This is a bit of a vague term; as used by AMD, it seems to amount to the non-PC sector. SoC, System on Chip, typically means that the chip is not a stand-alone CPU. In reality, even what we now call CPUs are not stand-alone CPUs: AMD has been a leader in moving critical components that "glue" the CPU to the rest of the system, like memory controllers, onto a single chip. Embedded SoC in this case means customized for a particular application. Rory indicated AMD would be looking only at relatively high-volume applications as margins have been too low in some low-volume systems. Examples of possible embedded AMD chip use would be for advertising displays, casino machines, industrial and medical use.
AMD does not currently break out embedded revenue, but the goal is to raise it to 20% of revenue by the end of the year. No word on whether that is 20% extra revenue or 20% replacement of eroding PC revenue, and Rory made it clear no details would be announced until the OEMs are ready to announce them.
The PC business, of course, is still critical, as is the entry into tablet computing. Rory made a point that AMD engineers are executing well, making their timeline, and in one crucial area are about 6 months ahead of Intel. Along those lines, AMD has demonstrated working Temash and Kabini silicon. These APUs will be quad core SoCs for the tablet and mobile markets. They also already introduced the new Richland A series APU, upgrading a sweet spot in their line.
This morning as I write AMD has popped from its pre-conference and results close of $2.45 up 9% to $2.67. Obviously no one knows if AMD will be able to execute its plan or if, once products are available, they will sell well enough to bring AMD back to profitability. It has the look and feel of a good plan and a big turnaround to me, but I have been wrong about AMD in the past, and the sands of silicon are shifting rapidly and unpredictably. Before getting bullish on AMD, I'd like to see the 2013 products, the revenue, and the profits.
Disclaimer: I have long been long AMD and will not trade the stock for 3 days after the publication of this report.
William P. Meyers
See also:
www.amd.com
My main AMD analyst conferences page.
My AMD Q4 2012 analyst conference notes
Showing posts with label servers. Show all posts
Showing posts with label servers. Show all posts
Wednesday, January 23, 2013
Wednesday, May 30, 2012
Marvell provides ARMADA CPUs to Dell
Dell announced today that it is experimenting with ARM processor based servers and shipping product to partners. The "Copper" servers will be used mainly for evaluation. ARM processors currently are limited to 32-bit paths, but almost all current servers run 64-bit software. ARM is planning to introduce a 64-bit CPU architecture, probably some time in 2013. Dell presumably would start selling commercial quantities of the ARM based servers in 2014.
ARM licenses its architecture to many semiconductor companies. What ARM processor did Dell choose for its preliminary designs? ARMADA XP by Marvell.
This critical detail is near the bottom of the Dell ARM Servers press release. In the more detailed Introducing Copper blog there is a a video of a talk with Christina Tiner, who points out the ARMADA CPUs about a minute and a half into the video.
There is also a Marvell Powers Dell Copper ARM Server release from Marvell.
It is probably no reason to buy or sell Marvell stock. ARMADA is getting a lot of traction, but you can bet other ARM processor makers like Texas Instruments will be gunning for the slot in the commercial run. Dell could even abandon the project if customers decide that ARM really is not all that great at running web workloads when compared to x86 based processors.
Still, it puts Marvell on the inside track to what may the next big wave in computer processing.
Disclaimer: I am invested in Marvell stock.
ARM licenses its architecture to many semiconductor companies. What ARM processor did Dell choose for its preliminary designs? ARMADA XP by Marvell.
This critical detail is near the bottom of the Dell ARM Servers press release. In the more detailed Introducing Copper blog there is a a video of a talk with Christina Tiner, who points out the ARMADA CPUs about a minute and a half into the video.
There is also a Marvell Powers Dell Copper ARM Server release from Marvell.
It is probably no reason to buy or sell Marvell stock. ARMADA is getting a lot of traction, but you can bet other ARM processor makers like Texas Instruments will be gunning for the slot in the commercial run. Dell could even abandon the project if customers decide that ARM really is not all that great at running web workloads when compared to x86 based processors.
Still, it puts Marvell on the inside track to what may the next big wave in computer processing.
Disclaimer: I am invested in Marvell stock.
Wednesday, January 25, 2012
AMD Looks to Trinity for Growth in 2012
AMD reported a mix of signals from its fourth quarter 2011 at its analyst call yesterday.
AMD makes CPUs and graphics chips, including combined chips called APUs, for PCs, servers, and notebook computers. AMD has long struggled to make a profit in the shadow of its main competitor, Intel, which typically shows earnings that are more that AMD's revenues. For instance for Q4, AMD had $1.7 billion in revenues, while Intel had $13.9 billion in revenues of and $3.4 billion in non-GAAP net income.
Typically AMD has been the more innovative company, for instance introducing 32/64 bit chips, on-chip memory controllers, and on-chip graphics. In every case, however, Intel has used its cash to catch up with R&D, and then for marketing AMD back down to size. In Q4 Intel spent $2.3 billion on R&D, more than AMD received in total revenue.
So is AMD hopeless? Judging from the stock price, and its frequent quarters devoid of earnings the past few years, that is the easy bet. On a non-GAAP basis, excluding mainly a charge for a non-cash write down on AMD's investment in GlobalFoundries and a restructuring charge, AMD reported Q4 net income of $138 million or $0.19 per share. Whether that supports a stock price ending today at $6.73 per share depends on how you see the future.
According to some pundits, this was the year AMD was supposed to be wiped out. Clearly that worst-case scenario is wrong so far. The wipe out was supposed to come largely from a decline of PCs and x86-based chips in favor or smartphones and ARM-processors, combined with the usual pressures from Intel and graphics chip rival NVIDIA. Then there were the Thailand floods, which created a hard disk drive shortage which was supposed to kill what little demand there would be for PCs from old-fashioned worker bees who need something bigger (and faster, and with more storage) than an iPad to actually get work done.
There were some glitches, but on the whole AMD's Fusion strategy, putting a CPU and a high-end graphics processor on the same chip, worked out fairly well this year. AMD is now fabless, and fab partners were not able to produce good yields of the new chips (which cuts into margins) or even sufficient chips to meet demand.
The best news from yesterday's analyst call was that in Q1 the normal seasonal drop-off of demand combined with improved yields put in place in Q4 means AMD will have no supply constraints in the quarter. They should be able to meet demand for Fusion chips for the first time since the chips were introduced.
The new server chips, the 6200 Opteron series, are also selling well, but AMD was reduced to a tiny fraction of the market before the new product introduction. Intel is introducing new server chips in 2012, so it will be interesting to see how end markets respond.
The main opportunity for growth in 2012 with be Trinity chips, the newest design in AMD's Fusion series. Both the CPU component and the graphics component will be upgraded from current A-series chips, while power requirements will be reduced.
According to AMD, its OEM partners really like Trinity, which is already sampling. Trinity can power thin and light notebook designs, Windows 8 tablets, mainstream notebooks and PCs.
Most consumers may not recognize how much better AMD graphics are than Intel graphics, but OEMs have realized that Intel CPUs require expensive add-in graphic cards (from AMD or NVIDIA) to bring them up to snuff, while also increasing power draw. For very high end graphics, for games and for design work or intense computation, graphics cards are still required regardless of CPU. Intel has been working hard to make their graphics competitive, and could conceivably catch up by 2013. At the high end Intel CPUs are considerably faster than AMD CPUs, but they also cost a lot more.
I like to keep diversified and would recommend against anyone taking an outsized position in AMD at this point. Trinity may appeal to OEMs, but the real question is will it appeal to consumers (including business consumers), especially in China and India. If it does, there is still the margin question. AMD margins have historically been lower than Intel's and NVIDIA's, largely because AMD has been forced to compete on price even when its products have been technically superior to its competitors'.
If AMD can differentiate itself from Intel and get a good price point for Trinity chips, then it can make a profit and live to fight the next round. An entire year of strong positive cash flow would make AMD into a different sort of competitor. Intel would still be king, but AMD would have the money to work with and the scale to make it a real competitor rather than a second source.
Disclaimer: I am long AMD. I have no plans to sell my shares until I see how Trinity works out later in 2012. I won't trade AMD for at least a week after this article is published.
See also my AMD Q4 2011 analyst call summary;
http://www.amd.com/
AMD makes CPUs and graphics chips, including combined chips called APUs, for PCs, servers, and notebook computers. AMD has long struggled to make a profit in the shadow of its main competitor, Intel, which typically shows earnings that are more that AMD's revenues. For instance for Q4, AMD had $1.7 billion in revenues, while Intel had $13.9 billion in revenues of and $3.4 billion in non-GAAP net income.
Typically AMD has been the more innovative company, for instance introducing 32/64 bit chips, on-chip memory controllers, and on-chip graphics. In every case, however, Intel has used its cash to catch up with R&D, and then for marketing AMD back down to size. In Q4 Intel spent $2.3 billion on R&D, more than AMD received in total revenue.
So is AMD hopeless? Judging from the stock price, and its frequent quarters devoid of earnings the past few years, that is the easy bet. On a non-GAAP basis, excluding mainly a charge for a non-cash write down on AMD's investment in GlobalFoundries and a restructuring charge, AMD reported Q4 net income of $138 million or $0.19 per share. Whether that supports a stock price ending today at $6.73 per share depends on how you see the future.
According to some pundits, this was the year AMD was supposed to be wiped out. Clearly that worst-case scenario is wrong so far. The wipe out was supposed to come largely from a decline of PCs and x86-based chips in favor or smartphones and ARM-processors, combined with the usual pressures from Intel and graphics chip rival NVIDIA. Then there were the Thailand floods, which created a hard disk drive shortage which was supposed to kill what little demand there would be for PCs from old-fashioned worker bees who need something bigger (and faster, and with more storage) than an iPad to actually get work done.
There were some glitches, but on the whole AMD's Fusion strategy, putting a CPU and a high-end graphics processor on the same chip, worked out fairly well this year. AMD is now fabless, and fab partners were not able to produce good yields of the new chips (which cuts into margins) or even sufficient chips to meet demand.
The best news from yesterday's analyst call was that in Q1 the normal seasonal drop-off of demand combined with improved yields put in place in Q4 means AMD will have no supply constraints in the quarter. They should be able to meet demand for Fusion chips for the first time since the chips were introduced.
The new server chips, the 6200 Opteron series, are also selling well, but AMD was reduced to a tiny fraction of the market before the new product introduction. Intel is introducing new server chips in 2012, so it will be interesting to see how end markets respond.
The main opportunity for growth in 2012 with be Trinity chips, the newest design in AMD's Fusion series. Both the CPU component and the graphics component will be upgraded from current A-series chips, while power requirements will be reduced.
According to AMD, its OEM partners really like Trinity, which is already sampling. Trinity can power thin and light notebook designs, Windows 8 tablets, mainstream notebooks and PCs.
Most consumers may not recognize how much better AMD graphics are than Intel graphics, but OEMs have realized that Intel CPUs require expensive add-in graphic cards (from AMD or NVIDIA) to bring them up to snuff, while also increasing power draw. For very high end graphics, for games and for design work or intense computation, graphics cards are still required regardless of CPU. Intel has been working hard to make their graphics competitive, and could conceivably catch up by 2013. At the high end Intel CPUs are considerably faster than AMD CPUs, but they also cost a lot more.
I like to keep diversified and would recommend against anyone taking an outsized position in AMD at this point. Trinity may appeal to OEMs, but the real question is will it appeal to consumers (including business consumers), especially in China and India. If it does, there is still the margin question. AMD margins have historically been lower than Intel's and NVIDIA's, largely because AMD has been forced to compete on price even when its products have been technically superior to its competitors'.
If AMD can differentiate itself from Intel and get a good price point for Trinity chips, then it can make a profit and live to fight the next round. An entire year of strong positive cash flow would make AMD into a different sort of competitor. Intel would still be king, but AMD would have the money to work with and the scale to make it a real competitor rather than a second source.
Disclaimer: I am long AMD. I have no plans to sell my shares until I see how Trinity works out later in 2012. I won't trade AMD for at least a week after this article is published.
See also my AMD Q4 2011 analyst call summary;
http://www.amd.com/
Monday, September 19, 2011
AMD at the Earnings Crossroads
AMD (Advanced Micro Devices) has only two competitors in its niche: Intel (INTC) for CPUs (computer processing chips) that run x86 software and NVIDIA (NVDA) for GPUs (graphics processing chips). How much market share it takes in the PC chip market, and what margins it receives on the chips it does sell, determines its levels of revenue and profit or loss.
Historically, while AMD has been innovative, it has come in a far second against Intel and NVIDIA. In the last two years it has lost ground to Intel and gained ground from NVIDIA. The picture has been complicated further by the emergence of ARM architecture based processors as the preferred basis for smaller mobile devices like smartphones and tablet computers.
After years of development (usually corresponding to quarterly earnings losses) this year AMD is selling chips that combine a CPU and a GPU. Intel, also, has appended graphics to its new line of CPUs, but their chips are remarkably inferior, incapable of running the current Windows graphics standard, DirectX 11. As a result AMD has been selling all the Fusion chips it has been able to make.
Why then, the lack of excitement and lack of upward momentum in AMD stock? Today AMD closed at $6.92, well off its 52-week high of $9.58 and with an astonishingly low P/E ratio of 6.4, the kind you would expect from a declining industry stock.
For the moment the most visible cutting edge technology is in smartphones and Apple and Android based small tablets. That pretty much sums up tech investor thinking about AMD: that a tidal wave of 7 inch screens are going to replace PCs, including both notebook computers and desktops that can run 60 inch displays.
Let's say you have discovered the limits of small screen computing and think there is still life left in the larger form factors. How should AMD be priced then?
First—even if the economy lags, even if consumers are careful with their holiday electronics purchases, even if the economies of India and China don't grow quite as fast in 2011 as they did in 2010—in Q3 and more so in Q4 AMD will get a significant boost in profits from its new Bulldozer CPUs for the server market. They began shipping in quantity earlier this month, with most of the early allotment going directly into the supercomputer market, where they will replace, or fill empty slots in, the prior generations of AMD Opteron processors. Profit margins are better for server chips than for PC chips. AMD has lost a lot of market share to Intel in server chips these last five years. The new chips should help regain market share. They have a different architecture than the Intel chips, and hence are very cost effective at certain workloads. Bulldozer is not a conquer-the-world chip, but it will keep AMD in the most profitable part of the server CPU game.
On the down side, there are so many rumors about yields (% of good processors on a die) being poor for the Fusion chips, that I think it is fair we can treat the rumors as true. At the next AMD analyst conference there should be a question about that. At the Q2 conference the closest answer we got was that margins were good on the Fusion chips. If both are true, and AMD was right about 2nd half margin improvements, then what we have is upside potential. Yields usually improve over time; if margins are already good, they should be great when yields improve. The problem was doubtless forging the CPU and GPU on the same die; traditionally these chip types used different silicon technologies. Bulldozer yields are rumored to be good, but then these server chips don't have a GPU component.
For now I would take Q3 guidance as a fair range. The economy might push revenues down, but yield improvements could push margins up. Guidance was for Q3 revenue to increase 8 to 12% sequentially. Note that because of holiday demand, Q3 is typically the strongest quarter for AMD.
The numbers, when reported, give us hard data, but the technology trends rule long-term value. I think AMD (and for that matter Intel) are over-discounted. I think both will be taking market share in the tablet market in 2012 and 2013. I think the PC market will stay healthier than most pundits predict. Consumers and businesses who skipped a desktop or notebook upgrade to buy a tablet and smartphone will get back on the upgrade cycle.
The combination of full-powered GPUs and CPUs on a single chip may be more revolutionary than the smartphone. Essentially, we are introducing desktop (or even notebook) parallel supercomputing. We are just beginning to see software applications that utilize either a CPU plus separate GPU or the new Fusion chips. So watch for companies like Microsoft, Adobe, and Autodesk, as well as lesser-known companies and startups, to take advantage of this new paradigm.
Disclosure: I am long AMD.
Historically, while AMD has been innovative, it has come in a far second against Intel and NVIDIA. In the last two years it has lost ground to Intel and gained ground from NVIDIA. The picture has been complicated further by the emergence of ARM architecture based processors as the preferred basis for smaller mobile devices like smartphones and tablet computers.
After years of development (usually corresponding to quarterly earnings losses) this year AMD is selling chips that combine a CPU and a GPU. Intel, also, has appended graphics to its new line of CPUs, but their chips are remarkably inferior, incapable of running the current Windows graphics standard, DirectX 11. As a result AMD has been selling all the Fusion chips it has been able to make.
Why then, the lack of excitement and lack of upward momentum in AMD stock? Today AMD closed at $6.92, well off its 52-week high of $9.58 and with an astonishingly low P/E ratio of 6.4, the kind you would expect from a declining industry stock.
For the moment the most visible cutting edge technology is in smartphones and Apple and Android based small tablets. That pretty much sums up tech investor thinking about AMD: that a tidal wave of 7 inch screens are going to replace PCs, including both notebook computers and desktops that can run 60 inch displays.
Let's say you have discovered the limits of small screen computing and think there is still life left in the larger form factors. How should AMD be priced then?
First—even if the economy lags, even if consumers are careful with their holiday electronics purchases, even if the economies of India and China don't grow quite as fast in 2011 as they did in 2010—in Q3 and more so in Q4 AMD will get a significant boost in profits from its new Bulldozer CPUs for the server market. They began shipping in quantity earlier this month, with most of the early allotment going directly into the supercomputer market, where they will replace, or fill empty slots in, the prior generations of AMD Opteron processors. Profit margins are better for server chips than for PC chips. AMD has lost a lot of market share to Intel in server chips these last five years. The new chips should help regain market share. They have a different architecture than the Intel chips, and hence are very cost effective at certain workloads. Bulldozer is not a conquer-the-world chip, but it will keep AMD in the most profitable part of the server CPU game.
On the down side, there are so many rumors about yields (% of good processors on a die) being poor for the Fusion chips, that I think it is fair we can treat the rumors as true. At the next AMD analyst conference there should be a question about that. At the Q2 conference the closest answer we got was that margins were good on the Fusion chips. If both are true, and AMD was right about 2nd half margin improvements, then what we have is upside potential. Yields usually improve over time; if margins are already good, they should be great when yields improve. The problem was doubtless forging the CPU and GPU on the same die; traditionally these chip types used different silicon technologies. Bulldozer yields are rumored to be good, but then these server chips don't have a GPU component.
For now I would take Q3 guidance as a fair range. The economy might push revenues down, but yield improvements could push margins up. Guidance was for Q3 revenue to increase 8 to 12% sequentially. Note that because of holiday demand, Q3 is typically the strongest quarter for AMD.
The numbers, when reported, give us hard data, but the technology trends rule long-term value. I think AMD (and for that matter Intel) are over-discounted. I think both will be taking market share in the tablet market in 2012 and 2013. I think the PC market will stay healthier than most pundits predict. Consumers and businesses who skipped a desktop or notebook upgrade to buy a tablet and smartphone will get back on the upgrade cycle.
The combination of full-powered GPUs and CPUs on a single chip may be more revolutionary than the smartphone. Essentially, we are introducing desktop (or even notebook) parallel supercomputing. We are just beginning to see software applications that utilize either a CPU plus separate GPU or the new Fusion chips. So watch for companies like Microsoft, Adobe, and Autodesk, as well as lesser-known companies and startups, to take advantage of this new paradigm.
Disclosure: I am long AMD.
Friday, June 24, 2011
Oracle (ORCL) Sun Shines
Yesterday Oracle (ORCL) issued stunningly good results for its 4th fiscal quarter (Q4) 2011 ending May 31st. The price of the stock promptly took a major dive in after-hours trading, and is still down substantially as I write.
Usually when this sort of thing happens, a good report followed by a price fall, it is because either: (1) investors expectations were even higher or (2) guidance for the next quarter is below analyst expectations.
This time the issue is something far more specific: the revenue derived from a specific segment, computer hardware, that was acquired with Sun Microsystems last year. Before reading my commentary below, you might want to first familiarize yourself with Oracle quarter results with my notes on Oracle Q4 2011 Analyst Call.
Despite an overall increase in Oracle revenues of 13% from year earlier, hardware systems product revenues were $1.16 billion, down from $1.23 billion in the year-earlier quarter. That raised some flags with some analysts. Which mostly shows these guys have too many stocks to cover, or were hired for their connections, not their analytic ability. Oracle management explained their strategy before, and they explained it again during the question and answer session.
I'm with management on this one: Sun was poorly run from a business perspective, and Oracle is not obligated to repeat Sun's business mistakes. Rather than looking at specific products, Oracle looked at the overall Sun problem: low margins. Fortunately, those low margins were not all of a kind.
Oracle decided to stop selling low margin computer hardware products whenever possible, with the exception of those that margins could be raised over time. So a year later, they are selling slightly less product, but making far more profits on it. Not only that, but they are gearing up to sell a lot more product, in particular their Exadata and Exalogic lines. What is there not to like about that?
Oracle is a rapidly growing, undervalued technology stock. We are not in a tech bubble. A gold bubble, yes. A bond bubble, yes. Idiots are holding bonds at this point. Bonds are trash, in most cases not bringing in enough returns to keep even with inflation. Their principal is just as much at risk as it would be if invested (wisely) in quality stocks.
I don't own Oracle stock at this point, but with the price drop and a bright future, I could buy ORCL in my next buying round. The competition is mainly small cap tech and biotech stocks that may grow even faster, and yet are also cheap right now. [See what I own at William Meyers current stock portfolio]
One aspect of the situation not mentioned was Oracle's current war with HP over Intel Itanium based computers. I don't see much downside for Oracle here. Oracle software can run on many types of hardware. Itanium was always a bad idea, and Oracle should not be obligated to support two different Intel chip architectures.
Usually when this sort of thing happens, a good report followed by a price fall, it is because either: (1) investors expectations were even higher or (2) guidance for the next quarter is below analyst expectations.
This time the issue is something far more specific: the revenue derived from a specific segment, computer hardware, that was acquired with Sun Microsystems last year. Before reading my commentary below, you might want to first familiarize yourself with Oracle quarter results with my notes on Oracle Q4 2011 Analyst Call.
Despite an overall increase in Oracle revenues of 13% from year earlier, hardware systems product revenues were $1.16 billion, down from $1.23 billion in the year-earlier quarter. That raised some flags with some analysts. Which mostly shows these guys have too many stocks to cover, or were hired for their connections, not their analytic ability. Oracle management explained their strategy before, and they explained it again during the question and answer session.
I'm with management on this one: Sun was poorly run from a business perspective, and Oracle is not obligated to repeat Sun's business mistakes. Rather than looking at specific products, Oracle looked at the overall Sun problem: low margins. Fortunately, those low margins were not all of a kind.
Oracle decided to stop selling low margin computer hardware products whenever possible, with the exception of those that margins could be raised over time. So a year later, they are selling slightly less product, but making far more profits on it. Not only that, but they are gearing up to sell a lot more product, in particular their Exadata and Exalogic lines. What is there not to like about that?
Oracle is a rapidly growing, undervalued technology stock. We are not in a tech bubble. A gold bubble, yes. A bond bubble, yes. Idiots are holding bonds at this point. Bonds are trash, in most cases not bringing in enough returns to keep even with inflation. Their principal is just as much at risk as it would be if invested (wisely) in quality stocks.
I don't own Oracle stock at this point, but with the price drop and a bright future, I could buy ORCL in my next buying round. The competition is mainly small cap tech and biotech stocks that may grow even faster, and yet are also cheap right now. [See what I own at William Meyers current stock portfolio]
One aspect of the situation not mentioned was Oracle's current war with HP over Intel Itanium based computers. I don't see much downside for Oracle here. Oracle software can run on many types of hardware. Itanium was always a bad idea, and Oracle should not be obligated to support two different Intel chip architectures.
Tuesday, November 9, 2010
AMD Ships First APUs on Analyst Day
Computer chip maker AMD announced it began shipping its new APUs (Advanced Processing Units) to computer makers this morning from its Singapore plant. At its analyst day presentation AMD executives described and demonstrated the APUs, which combine an advanced CPU (general purpose computer processing unit) with an advanced GPU (graphics processing unit) on a single chip.
Emphasizing what a groundbreaking point has been reached, CEO Dirk Meyer held up a typical sized CPU and then a mid-range GPU card, which was about the size of a small paperback book. Then he held up the APU that will have the equivalent CPU and GPU computing power. It was smaller than the CPU chip, about the size of a postage stamp. I know that the GPU card contains not only a GPU chip but memory, a fan, and connections for video output, so the comparison was a bit of an exageration. But it is a sort of computing grail achievement that goes beyond mere size comparisons.
Of course, knowing AMD has been working for years to achieve this feat, much larger rival Intel has announced that it will also have an integrated cpu/gpu product release for 2011. AMD executives mocked it, as well they might. We know it is an inferior product. It supports a graphics standard called DX10, which is now four years old. AMD supports DX11. It is true that most older software and games can't take advantage of DX11.
But many games already can, and most graphics software updates are moving to DX11. So Intel will be making an offering that can't cope with new games or software. When you buy a new computer, it is often because you want to take advantage of new software. Intel will be leaving consumers in the lurch.
Nevertheless, Intel is the Goliath, and AMD's previous attempts to take on the giant have had mixed results. Intel's profits are usually higher than AMD's revenues, and Intel spends way more on R&D than AMD. A few years ago Intel was so far behind in graphics, it is remarkable that they are maybe only 2 years behind now.
Intel will heavily outspend AMD in marketing, and will omit to tell consumers that its chips can't run DX11. So for AMD to take a lot of market share in 2011, it has to get its story out. In my experience retailers are more interested in Intel advertising subsidies than in making sure consumers make an informed choice between computers based on AMD and Intel. I would hope that tech "geniuses" would tell show off their stuff by telling the public to choose AMD if they want good graphics and video capabilities. But it seems that a lot of technology mavens are employed by Intel and Apple.
If the word does get out that Intel cpu/gpu combination chips are not good enough, AMD's ability to take market share could become capacity constrained. Intel has a huge production capability to match its market share; AMD's capacity can only be expanded so much in the short run.
Still, even a 10% increase in revenues for AMD in 2011, with maybe a 1% increase in market share, would be a boon for AMD.
Watch this space closely. The actual computers will start being available to the public in January, traditionally a slow period for computer sales. Public acceptance of the new AMD products, or resistance to Intel advertising, should be knowable by March or so, and act as a predictor for the remainder of the year.
For investors a key element will be margins. AMD believes that with the new processors (and server chips introduced in 2010) it can improve its non-GAAP gross margin from about 40% for 2010 to about 44% to 48% in 2011. If that turns out to be true (if Intel does not start a price war), then earnings will rise nicely and AMD will be in an even better position to compete with Intel in 2012.
Dirk Meyer showed an HP thin light notebook running gaming level graphics using the new APU chips. He claimed it could run 8 to 10 hours on one battery charge, and would cost less than $600. I want one, and it would work a lot better for me than a smaller form factor tablet computer. This ability to reduce power consumption is being introduced across the range of new AMD products in 2011: for netbooks, notebooks, desktops, and servers. That is good news.
Emphasizing what a groundbreaking point has been reached, CEO Dirk Meyer held up a typical sized CPU and then a mid-range GPU card, which was about the size of a small paperback book. Then he held up the APU that will have the equivalent CPU and GPU computing power. It was smaller than the CPU chip, about the size of a postage stamp. I know that the GPU card contains not only a GPU chip but memory, a fan, and connections for video output, so the comparison was a bit of an exageration. But it is a sort of computing grail achievement that goes beyond mere size comparisons.
Of course, knowing AMD has been working for years to achieve this feat, much larger rival Intel has announced that it will also have an integrated cpu/gpu product release for 2011. AMD executives mocked it, as well they might. We know it is an inferior product. It supports a graphics standard called DX10, which is now four years old. AMD supports DX11. It is true that most older software and games can't take advantage of DX11.
But many games already can, and most graphics software updates are moving to DX11. So Intel will be making an offering that can't cope with new games or software. When you buy a new computer, it is often because you want to take advantage of new software. Intel will be leaving consumers in the lurch.
Nevertheless, Intel is the Goliath, and AMD's previous attempts to take on the giant have had mixed results. Intel's profits are usually higher than AMD's revenues, and Intel spends way more on R&D than AMD. A few years ago Intel was so far behind in graphics, it is remarkable that they are maybe only 2 years behind now.
Intel will heavily outspend AMD in marketing, and will omit to tell consumers that its chips can't run DX11. So for AMD to take a lot of market share in 2011, it has to get its story out. In my experience retailers are more interested in Intel advertising subsidies than in making sure consumers make an informed choice between computers based on AMD and Intel. I would hope that tech "geniuses" would tell show off their stuff by telling the public to choose AMD if they want good graphics and video capabilities. But it seems that a lot of technology mavens are employed by Intel and Apple.
If the word does get out that Intel cpu/gpu combination chips are not good enough, AMD's ability to take market share could become capacity constrained. Intel has a huge production capability to match its market share; AMD's capacity can only be expanded so much in the short run.
Still, even a 10% increase in revenues for AMD in 2011, with maybe a 1% increase in market share, would be a boon for AMD.
Watch this space closely. The actual computers will start being available to the public in January, traditionally a slow period for computer sales. Public acceptance of the new AMD products, or resistance to Intel advertising, should be knowable by March or so, and act as a predictor for the remainder of the year.
For investors a key element will be margins. AMD believes that with the new processors (and server chips introduced in 2010) it can improve its non-GAAP gross margin from about 40% for 2010 to about 44% to 48% in 2011. If that turns out to be true (if Intel does not start a price war), then earnings will rise nicely and AMD will be in an even better position to compete with Intel in 2012.
Dirk Meyer showed an HP thin light notebook running gaming level graphics using the new APU chips. He claimed it could run 8 to 10 hours on one battery charge, and would cost less than $600. I want one, and it would work a lot better for me than a smaller form factor tablet computer. This ability to reduce power consumption is being introduced across the range of new AMD products in 2011: for netbooks, notebooks, desktops, and servers. That is good news.
Monday, September 27, 2010
AMD Lowers Guidance, But Stock Price Rises ... Why?
On September 23, 2010, AMD, a maker of CPUs for servers and personal computers, made a big downward correction in its guidance [See AMD Update Third Quarter Outlook]. Yet the stock shot up from a base of $6.40 the next day, and since has risen to $7.02 at the close today. In the past few years, AMD stock has not done well on good news, much less bad news. What is the difference now?
Some pundits think Oracle may buy AMD. That makes no sense to me. Oracle may be in the market for a chip stock, but the idea would be to improve their datacenter hardware offerings, which are now based largely on Sun's old proprietary processors. AMD would bring a lot of baggage with it. The only attractive things about AMD would be its engineering teams, which are first-class, and its low price. Its market capitalization was just $4.73 billion end of today, and its non-GAAP P/E is 4.56, about as low as you can get.
Buying AMD would put Oracle in the desktop and notebook chip business, which are low-margin businesses. Oracle hates low margin business. They shut down a good part of Sun when they acquired it because margins were not high enough to please them. What Oracle needs is a smaller chip company with skills storage and networking chips as well as data processing. Marvell would be a good acquisition, but I doubt very much Marvell Technology would allow itself to be acquired. An even smaller company would make more sense.
Back to AMD, it is most likely that the stock price bounce had to do with short covering. Lots of people like to short AMD, which is the perennial loser in its competition with Intel. Intel had lowered its third quarter guidance weeks ago. In general the PC industry was known to be having a relatively slow Q3. I think the problem for the shorts was that AMD's problems were already built into the stock price. In fact, the new guidance could have been a lot worse. Then there are the Fusion products that will begin shipping in Q4 and ramp in Q1 2011. No short wants to be around to see what happens then.
When AMD's price rose after the announcements, the shorts had nowhere to go. They had to cover their bad bets. Momentum players jumped in too, taking advantage of the distress of the shorts.
AMD's new guidance is revenue for Q3 "in the range of down one to four percent as compared to revenue of $1.65 billion for the quarter ended June 26, 2010." What investors should be looking for when AMD actually reports Q3 numbers on October 14 is margins. Did they at least get good prices for the CPUs and GPUs they sold? After that, look at guidance for the release of Fusion APUs. All evidence is that they will be widely and happily adopted by OEMs that want to offer consumers better graphics capabilities than Intel can provide.
See also: Can AMD Ignite Fusion? [June 7, 2010]
AMD Q3 guidance given at Q2 analyst conference [July 15, 2010]
Note: I currently own AMD and Marvell stock, but not Intel or Oracle.
Keep diversified!
Some pundits think Oracle may buy AMD. That makes no sense to me. Oracle may be in the market for a chip stock, but the idea would be to improve their datacenter hardware offerings, which are now based largely on Sun's old proprietary processors. AMD would bring a lot of baggage with it. The only attractive things about AMD would be its engineering teams, which are first-class, and its low price. Its market capitalization was just $4.73 billion end of today, and its non-GAAP P/E is 4.56, about as low as you can get.
Buying AMD would put Oracle in the desktop and notebook chip business, which are low-margin businesses. Oracle hates low margin business. They shut down a good part of Sun when they acquired it because margins were not high enough to please them. What Oracle needs is a smaller chip company with skills storage and networking chips as well as data processing. Marvell would be a good acquisition, but I doubt very much Marvell Technology would allow itself to be acquired. An even smaller company would make more sense.
Back to AMD, it is most likely that the stock price bounce had to do with short covering. Lots of people like to short AMD, which is the perennial loser in its competition with Intel. Intel had lowered its third quarter guidance weeks ago. In general the PC industry was known to be having a relatively slow Q3. I think the problem for the shorts was that AMD's problems were already built into the stock price. In fact, the new guidance could have been a lot worse. Then there are the Fusion products that will begin shipping in Q4 and ramp in Q1 2011. No short wants to be around to see what happens then.
When AMD's price rose after the announcements, the shorts had nowhere to go. They had to cover their bad bets. Momentum players jumped in too, taking advantage of the distress of the shorts.
AMD's new guidance is revenue for Q3 "in the range of down one to four percent as compared to revenue of $1.65 billion for the quarter ended June 26, 2010." What investors should be looking for when AMD actually reports Q3 numbers on October 14 is margins. Did they at least get good prices for the CPUs and GPUs they sold? After that, look at guidance for the release of Fusion APUs. All evidence is that they will be widely and happily adopted by OEMs that want to offer consumers better graphics capabilities than Intel can provide.
See also: Can AMD Ignite Fusion? [June 7, 2010]
AMD Q3 guidance given at Q2 analyst conference [July 15, 2010]
Note: I currently own AMD and Marvell stock, but not Intel or Oracle.
Keep diversified!
Thursday, August 26, 2010
Marvell Technology (MRVL) Mobile Invasion
Marvell Technology Group had a mixed fiscal second quarter (Q2) 2011 ending July 31, 2010. Revenue fell below prior guidance. On the other hand it was was $896.5 million, up 5% sequentially from $856 million and up 40% from $640.6 million in the year-earlier quarter.
Wall Street was not suprised at the short fall because the PC supply chain was believed to have hit the pause button in July. Marvell's biggest product segment is semiconductor chips that go into hard drives (HDDs) for data storage. HDD revenue was 15% down sequentially from Q1. There had been supply constraints over the last year, and as a result HDD manufacturers had overbuilt inventory preparing for back to school sales. This was largely from the Europe economic effect, not so much an actual downturn in demand in Europe as cautious inventory control by spooked CEOs. Marvell management believes consumption of excess inventory is mainly behind, as orders rose again towards the end of July.
Making Q2 not such a bad quarter was the long-promised ramping of Marvell products for the mobile/wireless markets. This segment saw an over 50% sequential jump (and up 140% y/y) as silicon was shipped for a number of new products that consumers (mostly in Asia) will see in Q3. About 15% of sequential growth was due to to an Armada based product, with a single customer getting ready for a game product introduction. 30% of sequential growth was due to a cell phone processor for a customer ramping a new product. 55% of sequential growth was for embedded Wi-Fi, which is a market the Marvell has been successful in for some time, and is still building on that success. Management believes it will see 15% to 20% sequential growth in Q3 in the mobile and wireless segment.
Earlier this decade Marvell made very large commitments to R&D and also made some acquisitions that analysts questioned at the time [See Marvell's Huge Research and Development Budget August 24, 2007]. Now we are seeing fear in the hearts of competitors in a slew of fields that Marvell did not even play in five or ten years ago.
Take one known example from the mobile device market. Hawang has been producing eReaders for the Chinese market since 2008. The Marvell based model is due out by September. According to Hawang it offers "better performance at a better price ... true mass market pricing." This is possible because of Marvell's intellectual property and ability to put many functions on a single chip. Notably this single chip solution (SoC - System on a Chip) includes an integrated e-Paper Display (EPD) controller. It can display standard pdf documents and requires very little power. I also expect we will see OEM announcements of tablet computers that are based on Marvell chips as we progress through the year. These may be in Asian markets, but some should be available in the U.S. Keep in mind that this is a very competitive market. In addition to Apple's internally developed A4 chips (which almost certainly won't be sold to competing OEMs), top competitors include Broadcom, Qualcomm (Snapdragon chips), Intel, TI, and Freescale.
With its low-power application processors, cell phone modems, wi-fi and bluetooth technologies, all possibly on a single chip, Marvell has apparently won a leading position in China's new Ophone (smartphones for new cellular signal standard) production, which should begin ramping around the beginning of 2011. That, in itself, will be a huge business.
Another space that Marvell is already competive in and may dominate sooner than you think is Ethernet switching. This has become increasingly important with the proliferation of datacenters and cloud computing.
Most intriguing is the idea that Marvell is going to use products intially developed partly using the Intel division it acquired to go after the server market. Marvell is not the only company that can see using ARM architecture to design servers that sip power, but it does bring a formidable amount of talent to the table. Let's see: really fast, very low power consumption processors, networking chips, and storage chips. Sounds like the makings of a cloud datacenter to me.
Probably my favorite thing about Marvell managment is that they think long term. They have proven they can take a concept, get out a product a few years later, and dominate a market a few years to a decade after that. You might want to take notice of Marvell now, because by 2012 everyone will be noticing.
Resources:
Wall Street was not suprised at the short fall because the PC supply chain was believed to have hit the pause button in July. Marvell's biggest product segment is semiconductor chips that go into hard drives (HDDs) for data storage. HDD revenue was 15% down sequentially from Q1. There had been supply constraints over the last year, and as a result HDD manufacturers had overbuilt inventory preparing for back to school sales. This was largely from the Europe economic effect, not so much an actual downturn in demand in Europe as cautious inventory control by spooked CEOs. Marvell management believes consumption of excess inventory is mainly behind, as orders rose again towards the end of July.
Making Q2 not such a bad quarter was the long-promised ramping of Marvell products for the mobile/wireless markets. This segment saw an over 50% sequential jump (and up 140% y/y) as silicon was shipped for a number of new products that consumers (mostly in Asia) will see in Q3. About 15% of sequential growth was due to to an Armada based product, with a single customer getting ready for a game product introduction. 30% of sequential growth was due to a cell phone processor for a customer ramping a new product. 55% of sequential growth was for embedded Wi-Fi, which is a market the Marvell has been successful in for some time, and is still building on that success. Management believes it will see 15% to 20% sequential growth in Q3 in the mobile and wireless segment.
Earlier this decade Marvell made very large commitments to R&D and also made some acquisitions that analysts questioned at the time [See Marvell's Huge Research and Development Budget August 24, 2007]. Now we are seeing fear in the hearts of competitors in a slew of fields that Marvell did not even play in five or ten years ago.
Take one known example from the mobile device market. Hawang has been producing eReaders for the Chinese market since 2008. The Marvell based model is due out by September. According to Hawang it offers "better performance at a better price ... true mass market pricing." This is possible because of Marvell's intellectual property and ability to put many functions on a single chip. Notably this single chip solution (SoC - System on a Chip) includes an integrated e-Paper Display (EPD) controller. It can display standard pdf documents and requires very little power. I also expect we will see OEM announcements of tablet computers that are based on Marvell chips as we progress through the year. These may be in Asian markets, but some should be available in the U.S. Keep in mind that this is a very competitive market. In addition to Apple's internally developed A4 chips (which almost certainly won't be sold to competing OEMs), top competitors include Broadcom, Qualcomm (Snapdragon chips), Intel, TI, and Freescale.
With its low-power application processors, cell phone modems, wi-fi and bluetooth technologies, all possibly on a single chip, Marvell has apparently won a leading position in China's new Ophone (smartphones for new cellular signal standard) production, which should begin ramping around the beginning of 2011. That, in itself, will be a huge business.
Another space that Marvell is already competive in and may dominate sooner than you think is Ethernet switching. This has become increasingly important with the proliferation of datacenters and cloud computing.
Most intriguing is the idea that Marvell is going to use products intially developed partly using the Intel division it acquired to go after the server market. Marvell is not the only company that can see using ARM architecture to design servers that sip power, but it does bring a formidable amount of talent to the table. Let's see: really fast, very low power consumption processors, networking chips, and storage chips. Sounds like the makings of a cloud datacenter to me.
Probably my favorite thing about Marvell managment is that they think long term. They have proven they can take a concept, get out a product a few years later, and dominate a market a few years to a decade after that. You might want to take notice of Marvell now, because by 2012 everyone will be noticing.
Resources:
Marvell fiscal Q2 2011 analyst call summary
My Marvell analysis page
Marvell and Hawang E-Reader [Marvell release June 1, 2010]
Marvell Moby Technology site
Monday, July 12, 2010
AMD Earnings At Bat
Another earnings season got underway today when Alcoa reported. Of the companies I follow closely the first to report on its second quarter (Q2) will be the computer chip maker AMD.
Q1 2010 was the best first quarter in AMD's history, with revenue of $1.57 billion and GAAP net income fo $257 million. Guidance for Q2 (given at the AMD Q1 2010 analyst conference) was that it would be down seasonally from Q1. That is a typical seasonal pattern. In Q3 and Q4 each year the computer makers who are AMD's customers start ramping up for back-to-school and Christmas holiday sales.
I suspect that, within that context, Q2 has been a pretty good quarter, largely based on watching advertisements for consumer and enterprise computer equipment. In graphics chips NVIDIA did not come out with its new, competitive chips until well into the quarter, and even then supplies seem minimal, with AMD dominating key price points. I saw a number of adds for AMD graphics in machines that use Intel CPUs, which is a positive surprise.
In the CPU department I think the results may be mixed. Intel seems to continue to dominate in notebooks, while AMD has made some gains in the desktop department. Desktops are going a bit out of style as consumer items, and margins are low, but they are still critical for people who are doing non-mobile work where having computational power and large screens is still a big plus.
Finally, there is the server CPU market. I am seeing mixed signals here. AMD and Intel are more differentiated in servers than they were a few years ago. AMD has gone for more cores per CPU and more processing power per dollar, but Intel leads in pure performance. I doubt AMD made much headway against Intel in server market share this quarter, but it should still be a rising tide situation.
We'll get AMD's numbers on Thursday, July 15th. I'll be taking notes on the analyst conference and post them at AMD Q2 2010 analyst conference. You can also listen to the conference yourself live on the Internet, starting at AMD Q2 live conference. That will be at 2:00 PM Pacific Time (5:00 PM Eastern Time). If you miss it you can also listen to an archived recording later.
Q1 2010 was the best first quarter in AMD's history, with revenue of $1.57 billion and GAAP net income fo $257 million. Guidance for Q2 (given at the AMD Q1 2010 analyst conference) was that it would be down seasonally from Q1. That is a typical seasonal pattern. In Q3 and Q4 each year the computer makers who are AMD's customers start ramping up for back-to-school and Christmas holiday sales.
I suspect that, within that context, Q2 has been a pretty good quarter, largely based on watching advertisements for consumer and enterprise computer equipment. In graphics chips NVIDIA did not come out with its new, competitive chips until well into the quarter, and even then supplies seem minimal, with AMD dominating key price points. I saw a number of adds for AMD graphics in machines that use Intel CPUs, which is a positive surprise.
In the CPU department I think the results may be mixed. Intel seems to continue to dominate in notebooks, while AMD has made some gains in the desktop department. Desktops are going a bit out of style as consumer items, and margins are low, but they are still critical for people who are doing non-mobile work where having computational power and large screens is still a big plus.
Finally, there is the server CPU market. I am seeing mixed signals here. AMD and Intel are more differentiated in servers than they were a few years ago. AMD has gone for more cores per CPU and more processing power per dollar, but Intel leads in pure performance. I doubt AMD made much headway against Intel in server market share this quarter, but it should still be a rising tide situation.
We'll get AMD's numbers on Thursday, July 15th. I'll be taking notes on the analyst conference and post them at AMD Q2 2010 analyst conference. You can also listen to the conference yourself live on the Internet, starting at AMD Q2 live conference. That will be at 2:00 PM Pacific Time (5:00 PM Eastern Time). If you miss it you can also listen to an archived recording later.
Friday, April 16, 2010
Paint AMD Black: Profits at Last!
AMD, contrary to expectations, posted a profit in the first quarter of 2010. This is remarkable. The maker of computer processing unit (CPU) and graphics processing unit (GPU) chips was not expected to show a profit until well into 2010, if ever.
In Q4 2009 AMD's rival Intel paid it $1.25 billion to settle (probably true) allegations that Intel had engaged in illegal, monopolistic practices that lowered AMD's sales earlier in the decade. Whether or not AMD was profitable in Q4 is problematic. GAAP (Generally Accepted Accounting Principle) net income (profit) was $1.18 billion. But take away the $1.25 million from Intel, and you have a $70 million loss. On the other hand AMD claimed in had non-GAAP net income of $80 million. But to get that number they had to exclude GlobalFoundries, which is the new company holding the fabrication facilities AMD had formerly owned 100% of. Still, Q4 revenue of $1.65 billion was up an astonishing 42% from Q4 2008.
Q1 2010 had positive net income any way you look at it. Revenue was up 33% from $1.18 billion in the year-earlier quarter. But there were a number of one-time charges and benefits related to spinning off GlobalFoundries that need to be examined by investors. GAAP net income was $257 million. Most of the time companies give non-GAAP numbers because they are higher that GAAP numbers, but in this case AMD owned up that on a comparable non-GAAP basis net income was only $63 million (then again, prior guidance was for negative that figure). See my AMD Q1 2010 Analyst Conference Summary for a more detailed explanation, or the AMD 4/15/2010 earnings release for a number of reconciliation tables between GAAP and non-GAAP numbers.
Because of the cyclical buying patterns of both consumers and enterprise buyers, the first half of the year is typically slower for AMD and Intel than the second half. Even with the global semiconductor industry climbing rapidly out of the recession (or, as I prefer, the Panic of 2008), AMD was expecting to show a loss this quarter. What made the difference?
AMD has introduced some very competitive products lately. In servers, it offers chips with more cores than Intel (although Intel cores allow more threads per core, which helps in some multi-threaded software applications). In notebook computer chips it has been coming from behind, which makes it relatively easy to gain market share. In graphics chips AMD picked up a lot of market share from competitor NVIDIA these last two quarters, and with very good profit margins (there's a manufacturing capacity shortage, so no price war at present).
As we move into 2010 the most probable trajectory is fairly sweet for AMD, but of course competition with NVIDIA and Intel will remain fierce. One way to categorize servers is by number of processors; most low end servers are 1P, while 2P servers are very popular. There has been a historic price premium for 4P and up servers because of the difficulty making that many chips communicate effectively with each other. Now, at least for 4P, AMD has solved that problem. The new 6000 series 2P chips are ready for 4P. At first they will be used mostly for 2P boxes, but the incentive to move to 4P boxes, especially in virtualized server farms, will be significant. A 4P box would have 4 AMD processors with as many as 12 cores per processor, or 48 cores. Each core can easily run as a virtual machine, so for instance for Web server farms, each box would be the equivalent of 48 Web servers. The economies of scale will be quite attractive.
On the other hand, a lot of tech guys just wait for Intel, no matter how slow Intel is. So how much actual market share AMD will pick up while those guys are waiting for Intel is not predictable.
There are other new products being introduced this year, but the next big thing is Fusion, in which chips can act as both CPUs and GPUs. Look to hear more about that this coming fall.
In Q4 2009 AMD's rival Intel paid it $1.25 billion to settle (probably true) allegations that Intel had engaged in illegal, monopolistic practices that lowered AMD's sales earlier in the decade. Whether or not AMD was profitable in Q4 is problematic. GAAP (Generally Accepted Accounting Principle) net income (profit) was $1.18 billion. But take away the $1.25 million from Intel, and you have a $70 million loss. On the other hand AMD claimed in had non-GAAP net income of $80 million. But to get that number they had to exclude GlobalFoundries, which is the new company holding the fabrication facilities AMD had formerly owned 100% of. Still, Q4 revenue of $1.65 billion was up an astonishing 42% from Q4 2008.
Q1 2010 had positive net income any way you look at it. Revenue was up 33% from $1.18 billion in the year-earlier quarter. But there were a number of one-time charges and benefits related to spinning off GlobalFoundries that need to be examined by investors. GAAP net income was $257 million. Most of the time companies give non-GAAP numbers because they are higher that GAAP numbers, but in this case AMD owned up that on a comparable non-GAAP basis net income was only $63 million (then again, prior guidance was for negative that figure). See my AMD Q1 2010 Analyst Conference Summary for a more detailed explanation, or the AMD 4/15/2010 earnings release for a number of reconciliation tables between GAAP and non-GAAP numbers.
Because of the cyclical buying patterns of both consumers and enterprise buyers, the first half of the year is typically slower for AMD and Intel than the second half. Even with the global semiconductor industry climbing rapidly out of the recession (or, as I prefer, the Panic of 2008), AMD was expecting to show a loss this quarter. What made the difference?
AMD has introduced some very competitive products lately. In servers, it offers chips with more cores than Intel (although Intel cores allow more threads per core, which helps in some multi-threaded software applications). In notebook computer chips it has been coming from behind, which makes it relatively easy to gain market share. In graphics chips AMD picked up a lot of market share from competitor NVIDIA these last two quarters, and with very good profit margins (there's a manufacturing capacity shortage, so no price war at present).
As we move into 2010 the most probable trajectory is fairly sweet for AMD, but of course competition with NVIDIA and Intel will remain fierce. One way to categorize servers is by number of processors; most low end servers are 1P, while 2P servers are very popular. There has been a historic price premium for 4P and up servers because of the difficulty making that many chips communicate effectively with each other. Now, at least for 4P, AMD has solved that problem. The new 6000 series 2P chips are ready for 4P. At first they will be used mostly for 2P boxes, but the incentive to move to 4P boxes, especially in virtualized server farms, will be significant. A 4P box would have 4 AMD processors with as many as 12 cores per processor, or 48 cores. Each core can easily run as a virtual machine, so for instance for Web server farms, each box would be the equivalent of 48 Web servers. The economies of scale will be quite attractive.
On the other hand, a lot of tech guys just wait for Intel, no matter how slow Intel is. So how much actual market share AMD will pick up while those guys are waiting for Intel is not predictable.
There are other new products being introduced this year, but the next big thing is Fusion, in which chips can act as both CPUs and GPUs. Look to hear more about that this coming fall.
Tuesday, February 2, 2010
SGI Revenues: GAAP v. non-GAAP
SGI (Silicon Graphics International) reported results for its quarter ending December 25, 2009 today, and the numbers look good to me. However, that interpretation requires breaking a general rule.
I like to use GAAP (Generally Accepted Accounting Principle) numbers unless there are good reasons to use non-GAAP numbers for putting a value on a company. Usually revenues are the same, or close, for GAAP and non-GAAP. If there are differences, they appear as non-GAAP net income and EPS. In the past some companies have pushed non-GAAP numbers that misled investors.
In this quarter, for SGI, GAAP revenues were $94.1 million, but non-GAAP revenues were $151.5 million. How can that be? In this case, apparently the higher figure represents payments received on equipment and services sold. But because the high-end computer equipment sold by SGI includes software and maintenance commitments, all of the revenue can't be booked under the accounting rules used.
SGI results from a combination of Rackable Systems and the old, bankrupt Silicon Graphics that took place in 2009. The old SGI was technologically formidable, but had a business culture of putting innovation above profits. I had some worries that the combination might end up with the wrong culture, but so far I have been pleasantly surprised. Rackable bought SGI's assets for a song, and brought a big pile of cash into the combined company. Having shed its debt and some not-so-brilliant business ideas, SGI looks pretty hot. It sells supercomputers and other high end products and services to government agencies and enterprises that need them. Rackable, of course, was known as the leading vendor for energy efficient server farm systems.
Still, there is a way to go before getting too bullish on the future of SGI. Non-GAAP net income was only $5.6 million, or $0.18 per share. While that might seem to justify today's stock price, there are a lot of moving parts involved.
I own some SGI stock (I kept my RACK stock), but would like to see at least a couple more quarters of good revenues and profits before adding significantly to it. It is a classic investor dilemma. If I wait and SGI does well, I'll certainly have to buy in at a higher price than today's. On the other hand, the potential for going back to a string of losses with just an occasional quarter of profits is all too real at this point.
For a detailed account, see my SGI Analyst Conference Summary for 2/2/2010. The new corporate web site is www.sgi.com.
So I had better ...
Keep diversified!
I like to use GAAP (Generally Accepted Accounting Principle) numbers unless there are good reasons to use non-GAAP numbers for putting a value on a company. Usually revenues are the same, or close, for GAAP and non-GAAP. If there are differences, they appear as non-GAAP net income and EPS. In the past some companies have pushed non-GAAP numbers that misled investors.
In this quarter, for SGI, GAAP revenues were $94.1 million, but non-GAAP revenues were $151.5 million. How can that be? In this case, apparently the higher figure represents payments received on equipment and services sold. But because the high-end computer equipment sold by SGI includes software and maintenance commitments, all of the revenue can't be booked under the accounting rules used.
SGI results from a combination of Rackable Systems and the old, bankrupt Silicon Graphics that took place in 2009. The old SGI was technologically formidable, but had a business culture of putting innovation above profits. I had some worries that the combination might end up with the wrong culture, but so far I have been pleasantly surprised. Rackable bought SGI's assets for a song, and brought a big pile of cash into the combined company. Having shed its debt and some not-so-brilliant business ideas, SGI looks pretty hot. It sells supercomputers and other high end products and services to government agencies and enterprises that need them. Rackable, of course, was known as the leading vendor for energy efficient server farm systems.
Still, there is a way to go before getting too bullish on the future of SGI. Non-GAAP net income was only $5.6 million, or $0.18 per share. While that might seem to justify today's stock price, there are a lot of moving parts involved.
I own some SGI stock (I kept my RACK stock), but would like to see at least a couple more quarters of good revenues and profits before adding significantly to it. It is a classic investor dilemma. If I wait and SGI does well, I'll certainly have to buy in at a higher price than today's. On the other hand, the potential for going back to a string of losses with just an occasional quarter of profits is all too real at this point.
For a detailed account, see my SGI Analyst Conference Summary for 2/2/2010. The new corporate web site is www.sgi.com.
So I had better ...
Keep diversified!
Tuesday, September 8, 2009
I Sell Red Hat (RHT)
Today I sold all of my Red Hat (RHT) stock at $24.51 per share. I bought about half at $17.91 per share on January 21, 2008 and half at $10.86 on November 14, 2008.
This is in no way a reflection of lost optimism about Red Hat the company. I think they will continue to gain share in the server operating system and middleware markets. They have a great product (Linux Enterprise Edition) and serve their customers well.
Nevertheless, I do not like to bet on market psychology or price momentum. By the numbers Red Hat's stock price has gotten ahead of itself, especially compared to other technology stocks that have not run up as much. Last quarter revenues (not profits) were $175 million. So at a flat run rate 2009 revenues will be $700 million. Yet the market capitalization for the stock is $4.6 billion. There is a lot of optimism built into that market cap number. My guess is that in 2 years Red Hat will easily justify that number, but today I would rather have the cash.
I am going to continue to do analyst conference summaries for Red Hat. If the price dips, or if revenues and profits accelerate faster than I am assuming, I could buy back in. I watched Red Hat a long time before buying in; it is one of my favorite stock stories.
The next Red Hat results and analyst conference is scheduled for September 23.
See also Red Hat's site.
And keep diversified!
This is in no way a reflection of lost optimism about Red Hat the company. I think they will continue to gain share in the server operating system and middleware markets. They have a great product (Linux Enterprise Edition) and serve their customers well.
Nevertheless, I do not like to bet on market psychology or price momentum. By the numbers Red Hat's stock price has gotten ahead of itself, especially compared to other technology stocks that have not run up as much. Last quarter revenues (not profits) were $175 million. So at a flat run rate 2009 revenues will be $700 million. Yet the market capitalization for the stock is $4.6 billion. There is a lot of optimism built into that market cap number. My guess is that in 2 years Red Hat will easily justify that number, but today I would rather have the cash.
I am going to continue to do analyst conference summaries for Red Hat. If the price dips, or if revenues and profits accelerate faster than I am assuming, I could buy back in. I watched Red Hat a long time before buying in; it is one of my favorite stock stories.
The next Red Hat results and analyst conference is scheduled for September 23.
See also Red Hat's site.
And keep diversified!
Wednesday, April 1, 2009
Rackable Systems Eats Silicon Graphics
When I moved to San Francisco in the early 1990's and started meeting the computer graphics crowd, the place everyone said they wanted to work was Silicon Graphics. Not only was that where the cutting edge lay, it was also seen as a smart career move. Surely, in a few years, Silicon Graphics would surpass HP and then Intel and IBM.
It did not work out that way. Today Rackable Systems (RACK) announced it would buy Silicon Graphics (SGIC) for about $25 million. While that is certainly a bargain basement price for a treasure chest of intellectual property, I cannot assume that Rackable will do well with the acquisition.
Silicon Graphics' (aka SGI) traditional problem is running a business that actually makes money. That is exactly the problem Rackable Systems has had these last few years. Rackable has a substantial amount of cash in hand, but it was mostly generated from its initial IPO, not from profits. Rackable grew rapidly and had some profitable quarters a few years back, but then they got shoved around by bigger competitors, notably Sun, HP, Dell, and IBM. I think Rackable on its own could be profitable again if IT spending picks up some time this year, but this acquisition will create distractions and a lot of new variables to manage. So we have the dilemma of a company with a tremendous opportunity that could turn into a serious downside.
What are Rackable shareholders (that includes me) getting for their $25 million in cash? The latest results for SGI showed revenues of $82.8 million and a GAAP net loss of $49.2 million and an EBITDA of negative $17.3 million. That is no way to run a business. And it is not just from the recession. Once upon a time SGIC's market capitalization was over $1 billion.
So the first thing Rackable management should do is can as much of SGI's management as is necessary. Cut costs to the bone. Assuming an $80 million per quarter run rate, if you can't generate $8 million of profit on that, you should get out of the business. If there is revenue that can't be made to generate a profit, jetison it.
Having watched variously poorly managed technology companies for years, I will ball park what I would expect to see if I were a Rackable manager reviewing SGI. Sure, if you spend $1 million on a product, and it is a good product, and offer it for sale at $800,000, someone is going to buy it. What you need to do is price the product at $1.1 million. If your customer will not pay $1.1 million for the product that cost you $1 million, you don't need that customer. So first you try to raise the price, and if that does not work, you close that product line down. Let the managers and workers find jobs elsewhere (good luck). Or if they want to keep their jobs, and sell their product for $800,000, they need to find ways to reduce product cost, and if necessary give back enough of their compensation package to make that work. There a business people lacking high school diplomas who could tell you this; MBAs could tell you this; but technology guys often are mesmerized by their toys and forget they are in business.
SGI has some pretty nice products. Supercomputers. Those should be priced to generate a profit. Graphics software. Why should that not make a profit? Servers - lots of companies make profits selling servers. Professional services - how can you not make profits on professional services? (Technology geniuses have found a way to do that: pay your staff more than you charge the clients! Fail to take overhead into account!)
Rackable's last acquisition did not go well. Management said that RapidScale storage technology would be the Next Big Thing (back in 2006) but it was a failure that apparently could not be sold once Rackable no longer wanted it.
On the bright side, Rackable does have some pretty amazing talent, so maybe management can turn the company around and make hay with the SGI assets too. Rackable got big quickly because it took the need to lower power consumption at data centers seriously. It is still very, very good at that. It has clients like Amazon, Microsoft, Facebook, and Yahoo, and it has been making advances internationally and in new specialties like Defense and Oil exploration.
SGI looked like it should be valuable in the 1990's because it put technology first, before profits. Some times that works, but usually it does not. The best business model wins when the technology is good enough. The best business technology solves enterprise problems at a price that beats the alternatives. Profits have to be part of the model, or else you can't keep up research and development efforts. The leading edge wanders off to ATI or NVIDIA.
Because SGI is selling itself off through a bankruptcy, rather that directly with a merger, it is possible that debts will disappear. This, in itself, might help it move towards profitability, but even if it is the case, can't change the need for better management.
I'm not selling my Rackable stock, but I'm not buying more right now either. I'd like to see what Rackable does with the SGI assets over the next six months or so. If Rackable runs SGI like SGI ran SGI, this merger will sink it.
See also my Rackable Systems page, with links to Rackable analyst conference summaries.
It did not work out that way. Today Rackable Systems (RACK) announced it would buy Silicon Graphics (SGIC) for about $25 million. While that is certainly a bargain basement price for a treasure chest of intellectual property, I cannot assume that Rackable will do well with the acquisition.
Silicon Graphics' (aka SGI) traditional problem is running a business that actually makes money. That is exactly the problem Rackable Systems has had these last few years. Rackable has a substantial amount of cash in hand, but it was mostly generated from its initial IPO, not from profits. Rackable grew rapidly and had some profitable quarters a few years back, but then they got shoved around by bigger competitors, notably Sun, HP, Dell, and IBM. I think Rackable on its own could be profitable again if IT spending picks up some time this year, but this acquisition will create distractions and a lot of new variables to manage. So we have the dilemma of a company with a tremendous opportunity that could turn into a serious downside.
What are Rackable shareholders (that includes me) getting for their $25 million in cash? The latest results for SGI showed revenues of $82.8 million and a GAAP net loss of $49.2 million and an EBITDA of negative $17.3 million. That is no way to run a business. And it is not just from the recession. Once upon a time SGIC's market capitalization was over $1 billion.
So the first thing Rackable management should do is can as much of SGI's management as is necessary. Cut costs to the bone. Assuming an $80 million per quarter run rate, if you can't generate $8 million of profit on that, you should get out of the business. If there is revenue that can't be made to generate a profit, jetison it.
Having watched variously poorly managed technology companies for years, I will ball park what I would expect to see if I were a Rackable manager reviewing SGI. Sure, if you spend $1 million on a product, and it is a good product, and offer it for sale at $800,000, someone is going to buy it. What you need to do is price the product at $1.1 million. If your customer will not pay $1.1 million for the product that cost you $1 million, you don't need that customer. So first you try to raise the price, and if that does not work, you close that product line down. Let the managers and workers find jobs elsewhere (good luck). Or if they want to keep their jobs, and sell their product for $800,000, they need to find ways to reduce product cost, and if necessary give back enough of their compensation package to make that work. There a business people lacking high school diplomas who could tell you this; MBAs could tell you this; but technology guys often are mesmerized by their toys and forget they are in business.
SGI has some pretty nice products. Supercomputers. Those should be priced to generate a profit. Graphics software. Why should that not make a profit? Servers - lots of companies make profits selling servers. Professional services - how can you not make profits on professional services? (Technology geniuses have found a way to do that: pay your staff more than you charge the clients! Fail to take overhead into account!)
Rackable's last acquisition did not go well. Management said that RapidScale storage technology would be the Next Big Thing (back in 2006) but it was a failure that apparently could not be sold once Rackable no longer wanted it.
On the bright side, Rackable does have some pretty amazing talent, so maybe management can turn the company around and make hay with the SGI assets too. Rackable got big quickly because it took the need to lower power consumption at data centers seriously. It is still very, very good at that. It has clients like Amazon, Microsoft, Facebook, and Yahoo, and it has been making advances internationally and in new specialties like Defense and Oil exploration.
SGI looked like it should be valuable in the 1990's because it put technology first, before profits. Some times that works, but usually it does not. The best business model wins when the technology is good enough. The best business technology solves enterprise problems at a price that beats the alternatives. Profits have to be part of the model, or else you can't keep up research and development efforts. The leading edge wanders off to ATI or NVIDIA.
Because SGI is selling itself off through a bankruptcy, rather that directly with a merger, it is possible that debts will disappear. This, in itself, might help it move towards profitability, but even if it is the case, can't change the need for better management.
I'm not selling my Rackable stock, but I'm not buying more right now either. I'd like to see what Rackable does with the SGI assets over the next six months or so. If Rackable runs SGI like SGI ran SGI, this merger will sink it.
See also my Rackable Systems page, with links to Rackable analyst conference summaries.
Friday, January 23, 2009
AMD on the Ropes
When you go up against Goliath, you had better not make mistakes. The biggest David and Goliath story in the semiconductor chip industry in this decade has been AMD and Intel. Right now AMD is badly battered by the giant Intel, partly because AMD stumbled in introducing quad core microprocessors.
AMD reported fourth quarter 2008 results at its analyst conference yesterday, and they were a disaster. Even when you strip out special or non-cash items, AMD lost a lot of money on its basic operations producing microprocessors and graphics processors.
For details on what happened in the quarter and what management thinks of the first quarter of 2009, see my AMD analyst conference summary for q4 2008.
AMD made its biggest mistake, or double mistake, when it and Intel were transitioning from dual core to quad core chips. Much of today's problems stem from that era. Intel, which had been rapidly losing market share in the high-margin server chip market, decided to kluge together two dual core chips, each a separate piece of silicon. AMD insisted on the more elegant solution of actually putting all four cores for the Opteron on the same silicon chip. Then it ran into design and production problems, delaying its quad core introduction. Intel, with its dominant market share and huge cash flow, had no competition in quad-core chips for about a year. That was enough to regain most of the market share it had lost and to using pricing to keep AMD at bay even after quad core Opterons were finally introduced.
AMD also acquired graphic chip maker ATI, which was a smart move in itself, but they paid way too high of a premium for the acquisition and were saddled with debt that was unsupportable given ATI's marginal profitability.
AMD has always been behind Intel in what is called process technology. AMD's superior chip designs are typically made using larger silicon features than Intel's, which means Intel can put more transistors on any given size of chip.
The fourth quarter of 2008 should have been a magic moment for AMD. The new version of its quad core Opteron processor is at the same process technology, 45 nm, as Intel's current competitors. It is a very competitive chip. AMD also has very competitive desktop Phenom processors and notebook Turion processors. Some people even admit that it is ahead of NVIDIA in graphic chip technology for the first time since ATI was acquired.
But demand for computers fell across the board in the last quarter of 2008 due to the banking crisis. Instead of making a profit, gaining market share, and preparing for the next round of competition, AMD was badly hurt. Intel has a huge inventory of unsold processors, so they will probably be dumping them on the market. And Intel has huge cash reserves, so they can better develop new technology while making little profit during the downturn.
So is AMD finished? By no means. The spin off of their manufacturing operations to The Foundry Company has been well publicized and should be completed in February. At that point the core of AMD will be a design and sales company. AMD's much smaller team of engineers has consistently out-designed Intel for a decade now; maybe they can keep up the heat.
AMD will emerge from its spin off with a substantial amount of cash and somewhat decreased debt. That leaves it vulnerable, of course, to Intel's "aggressive" sales tactics (illegal, according to some nations) and ability to flood the market with cheap processors.
So visibility is practically non-existent here. If the economy turns around before Intel is able to introduce 32 nm based chips, AMD might be able to gain crucial high-margin market share in servers. But once Intel starts selling 32 nm chips, AMD will be at a disadvantage again, for a while, no matter how good their chip designs are.
I still own some AMD stock. It has been the worst performing stock in my portfolio. It is a reminder that even geniuses can lose money for you.
So keep diversified.
More data:
www.amd.com
AMD reported fourth quarter 2008 results at its analyst conference yesterday, and they were a disaster. Even when you strip out special or non-cash items, AMD lost a lot of money on its basic operations producing microprocessors and graphics processors.
For details on what happened in the quarter and what management thinks of the first quarter of 2009, see my AMD analyst conference summary for q4 2008.
AMD made its biggest mistake, or double mistake, when it and Intel were transitioning from dual core to quad core chips. Much of today's problems stem from that era. Intel, which had been rapidly losing market share in the high-margin server chip market, decided to kluge together two dual core chips, each a separate piece of silicon. AMD insisted on the more elegant solution of actually putting all four cores for the Opteron on the same silicon chip. Then it ran into design and production problems, delaying its quad core introduction. Intel, with its dominant market share and huge cash flow, had no competition in quad-core chips for about a year. That was enough to regain most of the market share it had lost and to using pricing to keep AMD at bay even after quad core Opterons were finally introduced.
AMD also acquired graphic chip maker ATI, which was a smart move in itself, but they paid way too high of a premium for the acquisition and were saddled with debt that was unsupportable given ATI's marginal profitability.
AMD has always been behind Intel in what is called process technology. AMD's superior chip designs are typically made using larger silicon features than Intel's, which means Intel can put more transistors on any given size of chip.
The fourth quarter of 2008 should have been a magic moment for AMD. The new version of its quad core Opteron processor is at the same process technology, 45 nm, as Intel's current competitors. It is a very competitive chip. AMD also has very competitive desktop Phenom processors and notebook Turion processors. Some people even admit that it is ahead of NVIDIA in graphic chip technology for the first time since ATI was acquired.
But demand for computers fell across the board in the last quarter of 2008 due to the banking crisis. Instead of making a profit, gaining market share, and preparing for the next round of competition, AMD was badly hurt. Intel has a huge inventory of unsold processors, so they will probably be dumping them on the market. And Intel has huge cash reserves, so they can better develop new technology while making little profit during the downturn.
So is AMD finished? By no means. The spin off of their manufacturing operations to The Foundry Company has been well publicized and should be completed in February. At that point the core of AMD will be a design and sales company. AMD's much smaller team of engineers has consistently out-designed Intel for a decade now; maybe they can keep up the heat.
AMD will emerge from its spin off with a substantial amount of cash and somewhat decreased debt. That leaves it vulnerable, of course, to Intel's "aggressive" sales tactics (illegal, according to some nations) and ability to flood the market with cheap processors.
So visibility is practically non-existent here. If the economy turns around before Intel is able to introduce 32 nm based chips, AMD might be able to gain crucial high-margin market share in servers. But once Intel starts selling 32 nm chips, AMD will be at a disadvantage again, for a while, no matter how good their chip designs are.
I still own some AMD stock. It has been the worst performing stock in my portfolio. It is a reminder that even geniuses can lose money for you.
So keep diversified.
More data:
www.amd.com
Thursday, January 15, 2009
Rackable Systems Sells ICE Cubes
The bad news from Rackable Systems (RACK) is that the fourth quarter of 2008 was slow. That should not be a surprise to anyone, given the overall economic panic we saw in Q4 2008.
While we are waiting for the economy to get its footing again, in the technology stock arena it is important to look at what companies will have to offer in the future. One thing RACK has is the ICE Cube system. This system has been available for sale for most of 2008. Rackable shipped to ICE Cubes in the quarter, but won't recognize revenue for them until fiscal 2009.
I had hoped more of these containerized server farms would sell during the quarter. On the other hand, a report that none sold in the quarter would not be surprising. Having two in the field is great, it will make more sales easier. Few companies want to be the first to but a new product when it is mission critical.
Rackable reported prelimary results for the full year, so fourth quarter results need to subtract the knowns from earlier in the year. Full year revenue is expected between $245 million and $250 million. Q3 revenue was $65 million, Q2 was $76 million, and Q1 was $68 million.
So Q4 revenue was between $36 and $41 million.
That is pretty bad. Even with a backlog and deferred product revenue of $20 million, that is pretty bad.
Which brings us back to Rackable's cash balance. The year-ending balance is expected between $175 and $185 million.
With Rackable's market capitalization at this moment is $122 million, (with stock price of $4.08 per share), you might think RACK is a bargain. I own Rackable stock and for years have watched as one development after another has stiffled the potential for growth and profitability. The energy-efficient data center space has become more crowded over the years.
So the downside risk is considerable. Rackable needs to sell a lot more ICE Cubes and a lot more server farms if it is going to compete with Sun, Dell, HP, IBM and a host of smaller competitors.
Balancing that pessimistic note is the potential for a big upside. In addition to the ICE Cubes, Rackable apparently has orders for its new CloudRack and MobiRack solutions. So maybe 2009 will be a better year than the economic forecasts and 4th quarter results indicate.
Always best to: Keep Diversified
See also my main Rackable Systems page
http://www.rackable.com/
While we are waiting for the economy to get its footing again, in the technology stock arena it is important to look at what companies will have to offer in the future. One thing RACK has is the ICE Cube system. This system has been available for sale for most of 2008. Rackable shipped to ICE Cubes in the quarter, but won't recognize revenue for them until fiscal 2009.
I had hoped more of these containerized server farms would sell during the quarter. On the other hand, a report that none sold in the quarter would not be surprising. Having two in the field is great, it will make more sales easier. Few companies want to be the first to but a new product when it is mission critical.
Rackable reported prelimary results for the full year, so fourth quarter results need to subtract the knowns from earlier in the year. Full year revenue is expected between $245 million and $250 million. Q3 revenue was $65 million, Q2 was $76 million, and Q1 was $68 million.
So Q4 revenue was between $36 and $41 million.
That is pretty bad. Even with a backlog and deferred product revenue of $20 million, that is pretty bad.
Which brings us back to Rackable's cash balance. The year-ending balance is expected between $175 and $185 million.
With Rackable's market capitalization at this moment is $122 million, (with stock price of $4.08 per share), you might think RACK is a bargain. I own Rackable stock and for years have watched as one development after another has stiffled the potential for growth and profitability. The energy-efficient data center space has become more crowded over the years.
So the downside risk is considerable. Rackable needs to sell a lot more ICE Cubes and a lot more server farms if it is going to compete with Sun, Dell, HP, IBM and a host of smaller competitors.
Balancing that pessimistic note is the potential for a big upside. In addition to the ICE Cubes, Rackable apparently has orders for its new CloudRack and MobiRack solutions. So maybe 2009 will be a better year than the economic forecasts and 4th quarter results indicate.
Always best to: Keep Diversified
See also my main Rackable Systems page
http://www.rackable.com/
Sunday, October 19, 2008
AMD Breaks New Microprocessor Ground
AMD is feisty. Despite the brutal monopoly tactics used by rival Intel (illegal kickbacks to customers; using the cash accumulated by earlier monopoly pricing to try to drive AMD out of the market; etc.), AMD is not only still in the game, it presents a growing strategic threat to Intel and a growing opportunity for eveyone else in the computer industry.
In the third quarter of 2008 AMD made progress on four major fronts. It showed a degree of creativity and flexibility that we have not seen from Intel since the 1980s. While Intel, which "owns" about 80% of the global microprocessor market, continues to have enormous advantages, it is AMD that is leading. Even if you just bought a PC with an Intel processor, its main advances over processors from 5 years ago - combined 32 and 64 bit capability, multiple processors on a single piece of silicon, and lower energy use - were all invented at AMD and then reluctantly introduced by Intel.
You can read some of this history in articles listed at my main AMD page for investors. I'm going to focus this blog entry on recent stategic developments.
One place AMD has consistently lagged Intel is process technology, which is the technology of creating semiconductor chips with ever smaller surface features. Each new generation allows more gates and hence capacity to be fit on the same size of silicon (or you can put your old design on a smaller piece of silicon, which costs less). It is very, very costly to develop each new generation, both in terms of R&D expense and then in creating the equipment that the new fab (semiconductor factories are called fabs) needs to make the improved chips. Intel made so much money from its microprocessor technology that it was able to keep well ahead of everyone else in the industry, often having as much as a two year lead time. For makers of chips requiring less transistors, this was not a big problem, unless they competed directly with Intel for a particular product.
AMD met this challenge by doing more with less; their processor designs were significantly better than Intels from about 2000 until 2006. But if AMD could be at the same level of process technology at the same time as Intel, it would be in a better position to press its design advantage. During the last decade AMD, working with IBM, has created very sophisticated fabs in Germany, and it has narrowed Intel's lead time. But it is still 6 months to a year or more behind Intel, and Intel has the money to drive the research and investment to keep that lead or even extend it. AMD is now shipping chips using 45 nm technology, but Intel started shipping theirs at the beginning of 2008.
In the past decade many major semiconductor players have emerged that don't have their own fabs. These fabless companies, like NVIDIA and Marvell, have done very well. But the independent foundries that produce chips for them have not been able to keep up with AMD in process technology, much less Intel. You might think that independent equipment makers like Applied Materials and KLA Tencor, would focus on getting ahead of Intel, but most chip makers don't have to put but a fraction of number of gates on a chip as AMD or Intel do, so the economic incentives are not there.
AMD's new stategy is to start allowing other companies to use its foundries when they need the advantage of cutting-edge chip manufacturing. As this happens research and development costs can be spread out over a larger number chip makers. With IBM, AMD and others working together it is possible that the AMD coalition could catch up with the Intel axis in process technology over the next few years.
To accomplish this strategy AMD brought in new investors, basically the nation of Abu Dhabi. AMD is contributing its fabs and some of its intellectual property to the Foundry Company, but Abu Dhabi will be the majority owners, in return for a multi-billion dollar cash infusion. In addition to continuing to expand the AMD plants in Dresden, Germany, AMD will break ground on a new plant in New York State. At a time when most new foundries are being built in places like Malasia and China, you might wonder why New York State. Well, what some people believe is the most sophisticated chip factory in the world, one of IBM's fabs, is in New York. These factories are mainly run by robots. There is no need for a lot of low-paid laborers doing hand work.
Except for the cash infusion, we won't see the results of this strategic turn until 2010 and beyond. But there are the three other fronts I spoke of: graphics, servers, and profits.
AMD aquired NVIDIA rival ATI for about $5 billion back in 2006, just in time to see ATI lose much of its share of the graphics chip market (at about the same time re-designed Intel microprocessor chips caught up with AMD's and Intel lowered prices to make all microprocessor sales unprofitable). I want to repeat what I've said many times, I think the NVIDIA team may be the smartest guys in the tech world. Still, they are AMD rivals in graphics. Recently ATI (now an AMD division) stole a march on NVIDIA with a new line of chips and graphics cards that became very popular very quickly with game enthusiasts this summer. All NVIDIA could do was lower the prices on their own chips while they rushed back to the drawing board (okay, these guys never leave the drawing board, they sleep on the drawing board, but you know what I mean).
NVIDIA still owns the graphics card market, but in Q3 AMDs graphics division revenue jumped to $385 million from $285 million in Q2, a 55% increase in 3 months. More important, AMD/ATI has two advantages over NVIDIA that might come into play in the next 2 years and allow them to eat further into NVIDIA market dominance. AMD leads NVIDIA in process technology, precisely because NVIDIA does not have its own fabs. And AMD can integrate its processor (CPU) development with its graphics development, which NVIDIA can't. This is also a three way race because Intel has long made low-end graphics chips and is trying to upgrade that division in response to the AMD threat. All this will be very good for consumers, who are already seeing inexpensive video cards that are targetted at gamers but that can easily handle high definition video and that can be used as super computers those of us who like to crunch numbers.
In server chips, so important to the Internet world, AMD is shipping its first 45 nm Opterons. Depending on what they are used for, they can be seen as better or worse than Intel's current server chips. AMD chips use less power and are better at math and sending information to and from memory. Intel chips are better at heating your building (actually, they are quite good, having finally incorporate much of the Opteron circa 2002 design improvements). The same advantage you see in Opteron server chips will soon become available in Phenom chips for desktop computers. AMD already has great notebook computer chips, the Puma series.
And for the final strategic advance, we have: profits. While still working towards GAAP and even non-GAAP net income, in Q3 2008 AMD showed operating profits. Much of the industry was concerned that if AMD continued to lose money it would be forced into bankrupcy, and Intel would go back to its high-prices and low performance everyone came to expect in the 1999s. By lowering costs, including by making the Dresden fabs highly efficient, and raising sales, AMD would have been back in the game even without the Abu Dhabi deal.
I own AMD stock and two computers containing AMD processors. I also own stock in Marvell. In the past I owned NVIDIA stock, but do not at present.
See also www.amd.com
In the third quarter of 2008 AMD made progress on four major fronts. It showed a degree of creativity and flexibility that we have not seen from Intel since the 1980s. While Intel, which "owns" about 80% of the global microprocessor market, continues to have enormous advantages, it is AMD that is leading. Even if you just bought a PC with an Intel processor, its main advances over processors from 5 years ago - combined 32 and 64 bit capability, multiple processors on a single piece of silicon, and lower energy use - were all invented at AMD and then reluctantly introduced by Intel.
You can read some of this history in articles listed at my main AMD page for investors. I'm going to focus this blog entry on recent stategic developments.
One place AMD has consistently lagged Intel is process technology, which is the technology of creating semiconductor chips with ever smaller surface features. Each new generation allows more gates and hence capacity to be fit on the same size of silicon (or you can put your old design on a smaller piece of silicon, which costs less). It is very, very costly to develop each new generation, both in terms of R&D expense and then in creating the equipment that the new fab (semiconductor factories are called fabs) needs to make the improved chips. Intel made so much money from its microprocessor technology that it was able to keep well ahead of everyone else in the industry, often having as much as a two year lead time. For makers of chips requiring less transistors, this was not a big problem, unless they competed directly with Intel for a particular product.
AMD met this challenge by doing more with less; their processor designs were significantly better than Intels from about 2000 until 2006. But if AMD could be at the same level of process technology at the same time as Intel, it would be in a better position to press its design advantage. During the last decade AMD, working with IBM, has created very sophisticated fabs in Germany, and it has narrowed Intel's lead time. But it is still 6 months to a year or more behind Intel, and Intel has the money to drive the research and investment to keep that lead or even extend it. AMD is now shipping chips using 45 nm technology, but Intel started shipping theirs at the beginning of 2008.
In the past decade many major semiconductor players have emerged that don't have their own fabs. These fabless companies, like NVIDIA and Marvell, have done very well. But the independent foundries that produce chips for them have not been able to keep up with AMD in process technology, much less Intel. You might think that independent equipment makers like Applied Materials and KLA Tencor, would focus on getting ahead of Intel, but most chip makers don't have to put but a fraction of number of gates on a chip as AMD or Intel do, so the economic incentives are not there.
AMD's new stategy is to start allowing other companies to use its foundries when they need the advantage of cutting-edge chip manufacturing. As this happens research and development costs can be spread out over a larger number chip makers. With IBM, AMD and others working together it is possible that the AMD coalition could catch up with the Intel axis in process technology over the next few years.
To accomplish this strategy AMD brought in new investors, basically the nation of Abu Dhabi. AMD is contributing its fabs and some of its intellectual property to the Foundry Company, but Abu Dhabi will be the majority owners, in return for a multi-billion dollar cash infusion. In addition to continuing to expand the AMD plants in Dresden, Germany, AMD will break ground on a new plant in New York State. At a time when most new foundries are being built in places like Malasia and China, you might wonder why New York State. Well, what some people believe is the most sophisticated chip factory in the world, one of IBM's fabs, is in New York. These factories are mainly run by robots. There is no need for a lot of low-paid laborers doing hand work.
Except for the cash infusion, we won't see the results of this strategic turn until 2010 and beyond. But there are the three other fronts I spoke of: graphics, servers, and profits.
AMD aquired NVIDIA rival ATI for about $5 billion back in 2006, just in time to see ATI lose much of its share of the graphics chip market (at about the same time re-designed Intel microprocessor chips caught up with AMD's and Intel lowered prices to make all microprocessor sales unprofitable). I want to repeat what I've said many times, I think the NVIDIA team may be the smartest guys in the tech world. Still, they are AMD rivals in graphics. Recently ATI (now an AMD division) stole a march on NVIDIA with a new line of chips and graphics cards that became very popular very quickly with game enthusiasts this summer. All NVIDIA could do was lower the prices on their own chips while they rushed back to the drawing board (okay, these guys never leave the drawing board, they sleep on the drawing board, but you know what I mean).
NVIDIA still owns the graphics card market, but in Q3 AMDs graphics division revenue jumped to $385 million from $285 million in Q2, a 55% increase in 3 months. More important, AMD/ATI has two advantages over NVIDIA that might come into play in the next 2 years and allow them to eat further into NVIDIA market dominance. AMD leads NVIDIA in process technology, precisely because NVIDIA does not have its own fabs. And AMD can integrate its processor (CPU) development with its graphics development, which NVIDIA can't. This is also a three way race because Intel has long made low-end graphics chips and is trying to upgrade that division in response to the AMD threat. All this will be very good for consumers, who are already seeing inexpensive video cards that are targetted at gamers but that can easily handle high definition video and that can be used as super computers those of us who like to crunch numbers.
In server chips, so important to the Internet world, AMD is shipping its first 45 nm Opterons. Depending on what they are used for, they can be seen as better or worse than Intel's current server chips. AMD chips use less power and are better at math and sending information to and from memory. Intel chips are better at heating your building (actually, they are quite good, having finally incorporate much of the Opteron circa 2002 design improvements). The same advantage you see in Opteron server chips will soon become available in Phenom chips for desktop computers. AMD already has great notebook computer chips, the Puma series.
And for the final strategic advance, we have: profits. While still working towards GAAP and even non-GAAP net income, in Q3 2008 AMD showed operating profits. Much of the industry was concerned that if AMD continued to lose money it would be forced into bankrupcy, and Intel would go back to its high-prices and low performance everyone came to expect in the 1999s. By lowering costs, including by making the Dresden fabs highly efficient, and raising sales, AMD would have been back in the game even without the Abu Dhabi deal.
I own AMD stock and two computers containing AMD processors. I also own stock in Marvell. In the past I owned NVIDIA stock, but do not at present.
See also www.amd.com
Tuesday, September 30, 2008
AMD Shanghai Opterons Could Restore Profitability
Microprocessor and graphics processor chip maker AMD let slip that its new Shanghai version of the Opteron processor is actually ahead of schedule for production. Samples are available now for testing and it may begin appearing on servers as early as Q4 of this year.
AMD was doing well in its efforts to become a true rival to Intel until the Barcelona version of Opteron ran into problems. It came out over a year late. It had some merits: the four core version had all four cores on a single chip. Intel's four-core Xeon server processor actually was two two-core chips packaged together, which resulted in a variety of performance issues.
The Shanghai Opterons will also have four cores, but they will be on a 45nm process enabling them to have larger internal memories (caches) and other acclerators that were not present in the Barcelona versions, which were done with a 65nm process.
In looking at Q3 2008 results, which will be released October 16, we will be seeing the results of revenues from the current generation of Opteron processors. This generation has its merits, and may have sold well into energy conscious server customers. But if there is a surpise bump it will be from the recently reinvigorated ATI graphics unit, which came out with highly acclaimed products that may have sold very well in Q3. Notebook CPU and graphics chips, which were once a weakness for AMD, also should be showing a strengthening trend.
So if Q3 was better than expected, and Shanghai starts shipping in Q4, and the economy does not melt down, AMD investors will have something to cheer about for the first time since 2005. Given the almost vanishingly low current market capitalization for AMD, that might generate quite a pop.
Then again, I am a long-term investor in AMD, so this analysis could just be wishful thinking.
For more data see my AMD page and www.amd.com
For the technical news article on Shanghai see AMD says new 'Shanghai' chip is ready to go by Brooke Crothers at CNET.
Its always best to ...
Keep diversified!
AMD was doing well in its efforts to become a true rival to Intel until the Barcelona version of Opteron ran into problems. It came out over a year late. It had some merits: the four core version had all four cores on a single chip. Intel's four-core Xeon server processor actually was two two-core chips packaged together, which resulted in a variety of performance issues.
The Shanghai Opterons will also have four cores, but they will be on a 45nm process enabling them to have larger internal memories (caches) and other acclerators that were not present in the Barcelona versions, which were done with a 65nm process.
In looking at Q3 2008 results, which will be released October 16, we will be seeing the results of revenues from the current generation of Opteron processors. This generation has its merits, and may have sold well into energy conscious server customers. But if there is a surpise bump it will be from the recently reinvigorated ATI graphics unit, which came out with highly acclaimed products that may have sold very well in Q3. Notebook CPU and graphics chips, which were once a weakness for AMD, also should be showing a strengthening trend.
So if Q3 was better than expected, and Shanghai starts shipping in Q4, and the economy does not melt down, AMD investors will have something to cheer about for the first time since 2005. Given the almost vanishingly low current market capitalization for AMD, that might generate quite a pop.
Then again, I am a long-term investor in AMD, so this analysis could just be wishful thinking.
For more data see my AMD page and www.amd.com
For the technical news article on Shanghai see AMD says new 'Shanghai' chip is ready to go by Brooke Crothers at CNET.
Its always best to ...
Keep diversified!
Sunday, August 17, 2008
Shaking Up Tech: NVIDIA, AMD, and Intel
Technologies may come and go, but technology powerhouses can be much more durable. IBM, the champion of mainframe computing, is still around today and generating lots of profits for its investors. The mainframe also rans mostly did not make successful transitions to new technologies and business models.
The last three years have been rough for investors in the dominant computing technology, the PC. The funny thing is that PCs are more powerful than the mainframes of the 1980's, and many of them are not really personal; they are the servers of datacenters, internet web farms, and local networks.
Companies that dominate the end PC market like Dell and HP are dependent on the makers of the semiconductor chips that are the building blocks of the PC. Some components have multiple sources, but when it comes to the core, the Central Processing Unit (CPU, or just "processor"), there are only two AMD and Intel (symbol: INTC). In the graphics department at the high end we have only AMD (symbol: AMD) and NVIDIA (symbol: NVDA), but Intel competes in the low end of the market where graphics are integrated into motherboards.
Six years ago the picture looked remarkably like it does today, at least superficially. Intel dominated the CPU market. AMD made CPU's, but not profits, largely using technology licensed from Intel and allowed just enough market share by Intel to keep Intel from be accused of monopolizing the market. NVIDIA led the discrete graphics chip market, with ATI sometimes having substantial market share, but basically always in the number 2 position.
AMD is responsible for shaking up that picture two times in the past 6 years. Realizing that Intel's roadmap for future processors was not what PC makers really wanted, AMD came out with its Opteron server chip design, and with the Athlon equivalent for PCs. The Opteron and Athlon introduced 64-bit (as opposed the the prior standard 32 bit) computing to mass markets, integrated the memory controller on the chips, and were designed to save energy (Intel's roadmap was basically use the old design, keep running it faster and hotter). Despite a great deal of resistance for a complacent PC industry, and some hardball tactics Intel used to minimize the erosion of its market share, suddenly AMD looked like it might actually eventually overtake Intel. But Intel had a lot of money, lowered its prices, and even changed its chip design, then used its marketing power to push back at AMD.
AMD also bought ATI. They paid about $5 billion for ATI, more than the value of AMD today. NVIDIA and Intel both executed well at the same time, and AMD looked to be in risk of bankruptcy.
NVIDIA is also shaking things up with its CUDA technology. Let's just say it uses the graphics chip for general computing, and that endangers both CPU makers, Intel and AMD.
The second quarter of 2008 was one of the most interesting of this decade, and Q3 and Q4 are looking to be just as interesting. Both NVIDIA and Intel screwed up, and AMD's plan to sell better designed CPUs, graphics chips, and chip sets (the "glue" chips that go on the computer motherboard) seems to be getting some traction.
You can get a very good idea of the financial states of NVIDIA, AMD, and Intel, as well as hearing what their respective managements have to say about their current and upcoming technologies, by reading my summaries of their Q2 analyst conferences [See NVIDIA Q2 2008 analyst conference summary; AMD Q2 2008 analyst conference summary; Intel Q2 2008 analyst conference summary]. Note that NVIDIA's quarter ended July 27, 2008, and is their fiscal Q2 2009.
NVIDIA's disaster month was July. It was revealed that NVIDIA chips were melting down, particularly in certain Dell and Apple notebooks (Apple, as usual, denies that its products have any problems). NVIDIA took a $196 million charge to deal with the expected costs of replacing or fixing the notebooks. That is bad, but it is the kind of thing that happens from time to time, and should not affect NVIDIA very much unless the problem gets repeated.
Worse for NVIDIA, they had to drastically lower their prices in July. After about 3 years of offering no competitive threat to NVIDIA, ATI (now a division of AMD) had brought out some great graphics chips and prices them very nicely.
Which does not mean AMD is back in the money. Intel's primary weapon against Intel in 2006 was lowering prices to the point that AMD could not match. It is a monopoly tactic that is tried and true. Force out the competition with ruinous pricing, then jack prices back up to highly profitable levels when the competition is done in. The only difference with Intel is that if they had actually forced AMD out of business, they would then clearly be a monopoly. So they just pushed AMD to the brink, gained back some lost market share, and then raised prices again when they introduced their Core Duo technology.
NVIDIA is also far more profitable than AMD, but they have nowhere near the muscle of Intel. They have not yet tried to chase ATI/AMD out of the market with pricing muscle. Instead they have a long tradition of competing (and winning) with better technology. So the price cuts were necessary to their own survival, and will hurt their financial position in the short run more than they hurt AMD.
AMD stock is practially free these days. While AMD has a respite, it is going to have to struggle just to stay alive. It has not made a profit, even on a non-GAAP basis, in years. Its new notebook technology (a combination of CPUs and graphics chips) is very competitive and has had some good design wins, but Intel's (which suffered a delay in introductions) is certainly competitive. AMD is finally producing quad-core Opterons that are being lauded by end users, but they came out over a year late, giving Intel time to up the ante.
I own AMD stock, and it has been the worst-performing stock in my portfolio. Hope springs eternal, so I bought more AMD recently. NVIDIA stock is also dirt cheap; I am keeping an eyeball on it. Intel is a safe bet, but I don't feel it is a great bargain at the current price.
More data:
http://www.intel.com/
http://www.amd.com/
http://www.nvidia.com/
The last three years have been rough for investors in the dominant computing technology, the PC. The funny thing is that PCs are more powerful than the mainframes of the 1980's, and many of them are not really personal; they are the servers of datacenters, internet web farms, and local networks.
Companies that dominate the end PC market like Dell and HP are dependent on the makers of the semiconductor chips that are the building blocks of the PC. Some components have multiple sources, but when it comes to the core, the Central Processing Unit (CPU, or just "processor"), there are only two AMD and Intel (symbol: INTC). In the graphics department at the high end we have only AMD (symbol: AMD) and NVIDIA (symbol: NVDA), but Intel competes in the low end of the market where graphics are integrated into motherboards.
Six years ago the picture looked remarkably like it does today, at least superficially. Intel dominated the CPU market. AMD made CPU's, but not profits, largely using technology licensed from Intel and allowed just enough market share by Intel to keep Intel from be accused of monopolizing the market. NVIDIA led the discrete graphics chip market, with ATI sometimes having substantial market share, but basically always in the number 2 position.
AMD is responsible for shaking up that picture two times in the past 6 years. Realizing that Intel's roadmap for future processors was not what PC makers really wanted, AMD came out with its Opteron server chip design, and with the Athlon equivalent for PCs. The Opteron and Athlon introduced 64-bit (as opposed the the prior standard 32 bit) computing to mass markets, integrated the memory controller on the chips, and were designed to save energy (Intel's roadmap was basically use the old design, keep running it faster and hotter). Despite a great deal of resistance for a complacent PC industry, and some hardball tactics Intel used to minimize the erosion of its market share, suddenly AMD looked like it might actually eventually overtake Intel. But Intel had a lot of money, lowered its prices, and even changed its chip design, then used its marketing power to push back at AMD.
AMD also bought ATI. They paid about $5 billion for ATI, more than the value of AMD today. NVIDIA and Intel both executed well at the same time, and AMD looked to be in risk of bankruptcy.
NVIDIA is also shaking things up with its CUDA technology. Let's just say it uses the graphics chip for general computing, and that endangers both CPU makers, Intel and AMD.
The second quarter of 2008 was one of the most interesting of this decade, and Q3 and Q4 are looking to be just as interesting. Both NVIDIA and Intel screwed up, and AMD's plan to sell better designed CPUs, graphics chips, and chip sets (the "glue" chips that go on the computer motherboard) seems to be getting some traction.
You can get a very good idea of the financial states of NVIDIA, AMD, and Intel, as well as hearing what their respective managements have to say about their current and upcoming technologies, by reading my summaries of their Q2 analyst conferences [See NVIDIA Q2 2008 analyst conference summary; AMD Q2 2008 analyst conference summary; Intel Q2 2008 analyst conference summary]. Note that NVIDIA's quarter ended July 27, 2008, and is their fiscal Q2 2009.
NVIDIA's disaster month was July. It was revealed that NVIDIA chips were melting down, particularly in certain Dell and Apple notebooks (Apple, as usual, denies that its products have any problems). NVIDIA took a $196 million charge to deal with the expected costs of replacing or fixing the notebooks. That is bad, but it is the kind of thing that happens from time to time, and should not affect NVIDIA very much unless the problem gets repeated.
Worse for NVIDIA, they had to drastically lower their prices in July. After about 3 years of offering no competitive threat to NVIDIA, ATI (now a division of AMD) had brought out some great graphics chips and prices them very nicely.
Which does not mean AMD is back in the money. Intel's primary weapon against Intel in 2006 was lowering prices to the point that AMD could not match. It is a monopoly tactic that is tried and true. Force out the competition with ruinous pricing, then jack prices back up to highly profitable levels when the competition is done in. The only difference with Intel is that if they had actually forced AMD out of business, they would then clearly be a monopoly. So they just pushed AMD to the brink, gained back some lost market share, and then raised prices again when they introduced their Core Duo technology.
NVIDIA is also far more profitable than AMD, but they have nowhere near the muscle of Intel. They have not yet tried to chase ATI/AMD out of the market with pricing muscle. Instead they have a long tradition of competing (and winning) with better technology. So the price cuts were necessary to their own survival, and will hurt their financial position in the short run more than they hurt AMD.
AMD stock is practially free these days. While AMD has a respite, it is going to have to struggle just to stay alive. It has not made a profit, even on a non-GAAP basis, in years. Its new notebook technology (a combination of CPUs and graphics chips) is very competitive and has had some good design wins, but Intel's (which suffered a delay in introductions) is certainly competitive. AMD is finally producing quad-core Opterons that are being lauded by end users, but they came out over a year late, giving Intel time to up the ante.
I own AMD stock, and it has been the worst-performing stock in my portfolio. Hope springs eternal, so I bought more AMD recently. NVIDIA stock is also dirt cheap; I am keeping an eyeball on it. Intel is a safe bet, but I don't feel it is a great bargain at the current price.
More data:
http://www.intel.com/
http://www.amd.com/
http://www.nvidia.com/
Tuesday, August 5, 2008
Rackable Systems Disappoints, Promises
Rackable Systems (RACK) reported Q2 revenues that were up 12% over Q1 ($76 million v. $68 million). There are high expectations for Rackable, so the impressive sequential increase was not enough to compensate for the poor bottom line. Even on a non-GAAP basis there was a net loss of $3.5 million, or $0.12 per share. The GAAP loss was amplified by an impairment charge of $16 million to $28 million or negative $0.95 per share. [See my Rackable (RACK) analyst conference summary for August 4, 2008 for a full report]
The impairment charge was because they are "looking at strategic options" for their RapidScale storage technology, which they acquired only a few years ago, and which was supposed to help them grow into a much larger company. Obviously they expect to sell the division for less than they acquired it for, hence the write-down.
The sequential increase in revenue was marred by a single sale where management decided to make a substantial price cut to get the business. They would not name a client or a dollar amount, but they believe this one-time transaction will lead to future profitable sales.
There are, however, reasons for optimism. Management did not lower the guidance for 2008. They expect revenues of at least $353 million, which implies that Q3 and Q4 revenues will be over $100 million each, which would be quite a jump.
They have some reasons for this optimism. In a bull market the bulls would be swarming all over these "forward looking statements." The backround is their claim, upheld by independent researchers, that their technology is far more energy efficient than that of their competitors (Sun, HP, IBM, etc.). In addition to their standard data center and Internet server farm technologies, they have a product called the ICE Cube, which is a portable server farm in a standard storage container. They have been talking about this for well over a year now, and they finally completed their first sale after Q2 ended. At least as important, IBM has decided to partner with them on the ICE Cube by supplying its own blade servers (BladeCenter); presumably IBM will do the marketing on this joint product. Raytheon is also partnered with Rackable to sell ICE Cube technology to the government; it is particularly attractive for military applications.
For their standard servers (the Eco-Logical line), they had their first sale in the energy (petroleum) vertical market. About 65% of revenues were generated with sales to their current major clients, Amazon, Yahoo, and Microsoft.
And even the RapidScale debacle has its upside. They expect to announce a new, global storage partnership soon. So they don't need RapidScale as badly as some giant computer corporation needs their server farm technology.
They even made their first sale in Japan. Rackable has had weak international sales, but is working on that problem with partners.
I own Rackable stock; I am certainly not selling it at this point. Rackable has disappointed investors over the past two years, and profitability has been elusive. If you don't own the stock you might want to wait until Q3 results are in, to see if management can make good on its promises.
As always, keep diversified.
More data:
www.rackable.com
Openicon Rackable Page
The impairment charge was because they are "looking at strategic options" for their RapidScale storage technology, which they acquired only a few years ago, and which was supposed to help them grow into a much larger company. Obviously they expect to sell the division for less than they acquired it for, hence the write-down.
The sequential increase in revenue was marred by a single sale where management decided to make a substantial price cut to get the business. They would not name a client or a dollar amount, but they believe this one-time transaction will lead to future profitable sales.
There are, however, reasons for optimism. Management did not lower the guidance for 2008. They expect revenues of at least $353 million, which implies that Q3 and Q4 revenues will be over $100 million each, which would be quite a jump.
They have some reasons for this optimism. In a bull market the bulls would be swarming all over these "forward looking statements." The backround is their claim, upheld by independent researchers, that their technology is far more energy efficient than that of their competitors (Sun, HP, IBM, etc.). In addition to their standard data center and Internet server farm technologies, they have a product called the ICE Cube, which is a portable server farm in a standard storage container. They have been talking about this for well over a year now, and they finally completed their first sale after Q2 ended. At least as important, IBM has decided to partner with them on the ICE Cube by supplying its own blade servers (BladeCenter); presumably IBM will do the marketing on this joint product. Raytheon is also partnered with Rackable to sell ICE Cube technology to the government; it is particularly attractive for military applications.
For their standard servers (the Eco-Logical line), they had their first sale in the energy (petroleum) vertical market. About 65% of revenues were generated with sales to their current major clients, Amazon, Yahoo, and Microsoft.
And even the RapidScale debacle has its upside. They expect to announce a new, global storage partnership soon. So they don't need RapidScale as badly as some giant computer corporation needs their server farm technology.
They even made their first sale in Japan. Rackable has had weak international sales, but is working on that problem with partners.
I own Rackable stock; I am certainly not selling it at this point. Rackable has disappointed investors over the past two years, and profitability has been elusive. If you don't own the stock you might want to wait until Q3 results are in, to see if management can make good on its promises.
As always, keep diversified.
More data:
www.rackable.com
Openicon Rackable Page
Thursday, June 26, 2008
Red Hat (RHT) Accelerates Growth
Red Hat's stock price plunged today with most of the rest of the tech stocks. Perhaps RHT investors were overly optimistic about quarter results released yesterday, or they did not think Red Hat's guidance was robust enough. I think Red Hat is doing great. That said, it has a relatively high price/earnings (PE) ratio for this market. If growth flattens, that PE will need to come down.
However, if anything Red Hat growth is accelerating. It may even have been helped rather than hurt by the current macroeconomic environment. Its Red Hat Enterprise Linux operating system and JBoss middleware offer great value propositions for companies using a lot of data servers; the more servers, the greater the savings over competitors. We have a growing server market combined with Linux variations continuing to win market share from Unix and Microsoft OSs. It is a pretty rich field to plow.
View my summary of the Red Hat June 25, 2008 analyst conference and fiscal Q1 2009 results for more details; here I'll analyze the data.
Q1 revenue was $156.6 million, up 11% sequentially from $141.5, and up 32% from $118.9 million year-earlier.
Look back further and it gets more interesting. From my summary of the RHAT June 27, 2007 conference:
Q1 2008 revenues were $118.9 million, up 7% sequentially and up 42% from year earlier.
Two things: annual growth slowed to a mere 32% from 42% for the quarter year-earlier. On the other hand sequential growth (Q4 to Q1) increased from 7% to 11%.
You could read too much into such figures since Red Hat revenues are still small enough to be impacted by single deals, or income recognition that slips from the end of one quarter into the beginning of the next. But the 11% sequential growth is better than recent annual growth rates in a quarter that is not normally a strong quarter.
I think Red Hat has an ideal combination of high-quality, robust, easy to manage products and low pricing compared to rivals. There is plenty of competition for Linux server software, but Red Hat has established itself as the premium brand without charging premium prices.
With IT departments desperately needing to innovate to keep pace with the data explosion (driven in part by audio and video data), Red Hat offers open source solutions that are at least as well-tested and capable as proprietary solutions. With IT budgets strained and CEOs demanding high returns on investment, Red Hat software begins to look like a bargain.
The main danger to Red Hat is the possibility of a larger company using its financial muscle to sell competing software and services at uncompetitive prices. Microsoft (MSFT) could afford to do this, as could Oracle (ORCL), but they are locked in struggle with each other as well as SAP and IBM. Novell (NOVL) is treading in Red Hat's footsteps, but they don't have any profits to fight with. Sun (JAVA) is becoming an open source powerhouse, but their profits come from their hardware arm, which is still struggling.
So Red Hat is a risky stock and is not dirt cheap right now. It was cheaper when I bought some earlier this year. It has its risks, but I believe over a 2 to 3 year time horizon the risks are minimal and their is a great potential upside. Management seems to think the main constraint lately has not been demand, but the ability of its sales force to keep up with demand. That is not a bad problem to have.
More data:
www.redhat.com
Red Hat investor relations
Red Hat summary at NASDAQ
However, if anything Red Hat growth is accelerating. It may even have been helped rather than hurt by the current macroeconomic environment. Its Red Hat Enterprise Linux operating system and JBoss middleware offer great value propositions for companies using a lot of data servers; the more servers, the greater the savings over competitors. We have a growing server market combined with Linux variations continuing to win market share from Unix and Microsoft OSs. It is a pretty rich field to plow.
View my summary of the Red Hat June 25, 2008 analyst conference and fiscal Q1 2009 results for more details; here I'll analyze the data.
Q1 revenue was $156.6 million, up 11% sequentially from $141.5, and up 32% from $118.9 million year-earlier.
Look back further and it gets more interesting. From my summary of the RHAT June 27, 2007 conference:
Q1 2008 revenues were $118.9 million, up 7% sequentially and up 42% from year earlier.
Two things: annual growth slowed to a mere 32% from 42% for the quarter year-earlier. On the other hand sequential growth (Q4 to Q1) increased from 7% to 11%.
You could read too much into such figures since Red Hat revenues are still small enough to be impacted by single deals, or income recognition that slips from the end of one quarter into the beginning of the next. But the 11% sequential growth is better than recent annual growth rates in a quarter that is not normally a strong quarter.
I think Red Hat has an ideal combination of high-quality, robust, easy to manage products and low pricing compared to rivals. There is plenty of competition for Linux server software, but Red Hat has established itself as the premium brand without charging premium prices.
With IT departments desperately needing to innovate to keep pace with the data explosion (driven in part by audio and video data), Red Hat offers open source solutions that are at least as well-tested and capable as proprietary solutions. With IT budgets strained and CEOs demanding high returns on investment, Red Hat software begins to look like a bargain.
The main danger to Red Hat is the possibility of a larger company using its financial muscle to sell competing software and services at uncompetitive prices. Microsoft (MSFT) could afford to do this, as could Oracle (ORCL), but they are locked in struggle with each other as well as SAP and IBM. Novell (NOVL) is treading in Red Hat's footsteps, but they don't have any profits to fight with. Sun (JAVA) is becoming an open source powerhouse, but their profits come from their hardware arm, which is still struggling.
So Red Hat is a risky stock and is not dirt cheap right now. It was cheaper when I bought some earlier this year. It has its risks, but I believe over a 2 to 3 year time horizon the risks are minimal and their is a great potential upside. Management seems to think the main constraint lately has not been demand, but the ability of its sales force to keep up with demand. That is not a bad problem to have.
More data:
www.redhat.com
Red Hat investor relations
Red Hat summary at NASDAQ
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