Q2 is a great quarter for a write-off and to turn this traditionally and seasonally slow quarter into a financial disaster. AMD is no exception, as this Texas-based company decided to reduce its value by as much as $880 million, simply as the company is underperforming. This is what AMD has to do in order to get back to profitability and AMD has promised this for a few times now and we should expect that AMD might make some money by Q4 2008.

This is the second write-off related to ATI acquisition costs and it again underlines that it overpaid for ATI. In October 2006 AMD paid $5.6 billion for AMD and from this perspective this looks like an awful lot of money, especially as today AMD as a whole is not worth that much. In Q4 2007 AMD already wrote off $1.6 billion of goodwill related to ATI’s acquisition and with these $880 million we got to almost $2.5 billion write offs.

AMD tends to blame it all on ATI, its graphics division, but in reality ATI will probably make money in Q3 2008 while we are most certain that AMD’s CPU and other businesses won't. AMD needs a better CPU to get back in the game as currently they can only drop the prices to Intel’s offering and hope that people will chose them.

This $880 million is related to non-core parts of ATI, including cell phones and digital television, as AMD doesn’t think that these divisions are performing as planned. ATI's cell phone business was linked to Motorola and after Razr this business badly declined. We heard a while ago that ATI was trying to sell off these two divisions due to their weak performance.

AMD lost its CPU sexiness and only the fan boys or the people who really want cheap PCs are picking this second CPU manufacturer, the others simply go for superior Core 2 duo / quad processors. AMD still has to fire an additional 5 percent of its workforce still by September 2008 and this will definitely save some money.

We believe that this might be the part of asset light strategy, as if you write off 2.5 billion and fire 10 percent of your staff you are definitely getting lighter.

AMD has really fallen since late 2006 when it acquired ATI. The company’s shares were at close to $40, while last Friday it closed at $4.76 and was 20 cents, or 4 per cent down, which is a new 52-week low.

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