AMD says Hammer future depends on Microsoft

AS WE WERE in the middle of a desert on a camel with no name when AMD announced its last financial results, we missed its full quarterly report, which you can find on the US government's SEC website.

There's some interesting thoughts in this report, worth thinking about a little further.

Following the Enron and Worldcom scandals, US corporations now have to bend over backwards to provide as much info as possible to its shareholders.

First, AMD said that the "Designed for Microsoft Windows" logo scheme expires in November, and this deal can be terminated without any reason in 30 days by either party to the agreement.

AMD says: "If We Were to Lose Microsoft Corporation's Support for Our Products or Its Logo License, Our Ability to Market Our Processors May be Materially Adversely Affected. Our ability to innovate beyond the x86 instruction set controlled by Intel depends on support from Microsoft in its operating systems. If Microsoft does not provide support in its operating systems for our x86 instruction sets, including our x86-64 Hammer technology that will be introduced with our eighth-generation AMD Athlon and AMD Opteron processors, independent software providers may forego designing their software applications to take advantage of our innovations. In addition, we have entered into logo license agreements with Microsoft that allow us to label our products as “Designed for Microsoft Windows,” which expire in November 2002 and which may be terminated without cause on 30 days notice by either party. If we fail to retain the support and certification of Microsoft or if we are unable to renew or renegotiate the license agreements on acceptable terms, our ability to market our processors could be materially adversely affected. "

There seems no reason why Microsoft might dump AMD, unless, that is, Intel has more influence over the software manufacturer than appears to be the case.

AMD also discusses its joint venture with Fujitsu to make flash memories, and it appears that the two firms are still arguing over a $125 million payment in connection with the former Gresham manufacturing plant. AMD warns, rather ominously in our view: "While the FASL joint venture has been successful to date, there can be no assurance that Fujitsu and AMD will elect to continue the joint venture in its present form or at all."

Fujitsu, as we reported earlier in the week, turned in poor financial results and said more jobs would cut. Flash memory is something of a cash cow for AMD.

AMD also has to spend a lot of money this year and in the future. This is what the SEC notice said: "We Plan for Significant Capital Expenditures in 2002 and Beyond and if We Cannot Generate that Capital Internally or Obtain it Externally, We May Be Materially Adversely Affected. We plan to continue to make significant capital expenditures to support our microprocessor and Flash memory products both in the near and long term, including approximately $430 million during the remainder of 2002. These capital expenditures include those relating to the continued facilitization of our manufacturing facilities known as Dresden Fab 30, in Dresden, Germany, and Fab 25, in Austin, Texas. These capital expenditures will be a substantial drain on our cash flow and may also decrease our cash balances. To the extent that we cannot generate the required capital internally or obtain such capital externally, we could be materially adversely affected."

We noticed, also, that Business Week, about a week or so ago, examined AMD's current position.

This article is not online, but made interesting reading. According to the magazine, AMD has cash reserves of $1.1 billion, while Intel has $10.1 billion in cash.

It adds that at the current rate, AMD might find itself depleting that cash reserve as early as next May, and that will force Hector Ruiz to start urgently renegotiating a series of loans in a massive debt restructuring.

So any further delays in either the Hammer processor, or the Barton or the Athlon XP production is going to set that process back.

From talking, on our return, to AMD's partners in the business, we know that they're concerned about the firm's progress too. Many of them, such as Via, Nvidia, ATI and SIS, have hitched at least part of their future to Hector's AMD wagon. They're watching the apparent delays, inability to produce product, and the general effect of still sluggish PC sales with much concern.

You can find the full SEC filing here. µ