Phil's Take on AMD's Unprofitable 3rd Quarter
By Phil Trent
Date: November 6, 2001
AMD lost money in the third quarter. Will they lose money in the fourth quarter also?
I think AMD lost money in the 3rd quarter due to a combination of factors.
AMD has likely planned for some time to introduce XP in tandem with the Microsoft marketing push of Windows XP. At some point, AMD stopped producing T-Birds and started producing XP chips. Ideally, AMD wanted have just enough T-Birds to cover until the introduction of their Athlon XP. AMD realized that demand was slowing (economy & Sept. 11th), meaning they would have too much T-Bird inventory prior to the release of their new XP chip. What did AMD do? They had drop the bottom out of T-Bird ASPs rather than be stuck with obsolete inventory.
I think Q4 2001 and Q1 2002 are going to look a lot different. AMD continues to ramp up Dresden. Also, there is a switch to .13 Micron that, according to all accounts, is going as scheduled. T-bird will be sold out, driving people towards higher-ASP XP CPUs.
Another factor that will aid AMD is XP's product enhancements and rating system. Hardware aficionados are more likely to be willing to pay higher than T-bird prices for the Athlon XP's hardware prefetch and SSE enhancements, which both make 3D games and performance intensive apps faster. OEMs and Joe Consumer care more about megahertz, which is addressed in AMD's new labeling system. It appears that AMD played it safe to the point where the XP rating is universally faster than the Pentium 4 of the same megahertz.
It looks like the Athlon XP chips are going to return AMD to profitability by higher Athlon XP ASPs, product enhancements, and relabeled CPUs. All this equals profitability for AMD in the near future, perhaps even in the fourth quarter.
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