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AMD and GlobalFoundaries doomed warns analyst

by on07 November 2014

Both on the edge

AMD and GloFlo are at a tipping point, and things are not looking good for either, according to beancounters at Bernstein Research. The analysts said that AMD had announced another round of layoffs, changed chief executives, and delivered its latest dim quarterly results.

Bernstein wonders how much longer AMD would be around as it cannot help but question the intermediate-term viability of AMD’s client PC and server processor business. AMD’s principal business has been desktops and notebooks, and the company’s chips have often been the cheapest and most efficient. It’s never managed to take much more than 20 percent of the chip market away from Intel and has been losing ground in recent years. In its most recent quarter, AMD accounted for 5.2 percent of PC chip revenue, according to researcher IDC. AMD has less than $1 billion in cash on hand for the first time since 2001, and its share price is nearing its low.

The company’s last radical move came in 2008, when it split in two. AMD continued to design chips, while spinoff GlobalFoundries took over the factories pumping out the silicon. The idea was that AMD would be freed from the massive costs of building and running the plants, while GlobalFoundries could court other customers to keep the plants working at peak efficiency.

While AMD has managed to sell its chips to Microsoft and Sony for their video game consoles, it fumbled the server market, where Intel dominates, and the tablet and mobile markets, owned mostly by Qualcomm. Bernstein wrote that regrouping would require billions of dollars and AMD doesn’t have the cash.

“It will not take much at this point to push them over the edge given the company would now seem to have pulled most of the levers available to them to stay afloat.”

GloFlo is also in trouble. The company, owned by an investment arm of the Abu Dhabi government, has spent more than $10 billion over the past few years to upgrade its plants. In October it agreed to take on the unprofitable chipmaking operations of IBM, which will pay GlobalFoundries $1.5 billion over three years. That will help further two of GlobalFoundries’ aims: boosting chip production volume and raising cash. A planned Abu Dhabi factory has been put on hold indefinitely, because there isn’t enough chip demand to justify building it.

But Abu Dhabi would have to spend tens of billions more on GlobalFoundries to try to keep up with pressure from the rest of the industry.

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