Advanced Micro Devices, Inc. (AMD) Bankrupt By 2020? – ValueWalk Premium
Advanced Micro Devices, Inc. (AMD)

Advanced Micro Devices, Inc. (AMD) Bankrupt By 2020?

Kerrisdale Capital Investment Case Study Spring 2015 Competition – ‘Find a Zero: Which Billion Dollar Company Will be Bankrupt by 2020’ – case study on Advanced Micro Devices, Inc. (AMD)

Also see case studies on SolarCity here, Sears Holdings here and Peabody Energy here.

Abstract:

We contend that AMD one of Silicon Valley’s semiconductor success stories, will file for bankruptcy by 2020. Since 2008, this legacy company has survived by slashing operating expenses, spinning off its manufacturing business and transitioning away from its core PC business to “growth markets”. While it may be succeeding in marketing its turnaround narrative to the market, we see ADM at a point of no return. We identify a toxic combination comprising an uncompetitive product portfolio, technological leap forwards by competitors, several structural challenges, poor positioning due to an ineffective strategy and a worsening balance sheet. While it is bagging some wins, the clock is ticking and AMD will be unable to drive profitability in industries where product leadership, rather than merely pricing, determines success.

Participants: Bardavid, Toby; Pedretti, Ivan; Presa Perez, Aessandro

Advanced Micro Devices, Inc. (AMD) Overview

AMD is a global semiconductor company based in Sunnyvale, California, USA that designs, develops and sells microprocessors for computing, communications and graphic visuals for business and consumer markets. It employed 10,149 staff as of September 2014. The company is quoted on the NASDAQ and traded at around $2.4bn as of February 20th, 2015.

In view of the awful performance in the past three years, AMD is transitioning away from PC to “growth markets”, aggressively marketing its reorganization narrative to justify a disproportionate valuation. We argue that AMD is a typical example of a legacy company, which still benefits from its past reputation as a technological leader to fuel misconceptions about its survival prospects. Although it plays a systemically crucial role to avoid the complete monopoly of Intel and the likes in certain markets, it is not a sufficient argument to out rule the option of bankruptcy. Surprisingly, many investors are buying into the turnaround story advanced by its recently appointed CEO, Lisa Su, and we do not dispute that AMD still retains some healthy business units. However, we think that AMD, which once reached a valuation of $6.8bn in 2010, is destined to go bankrupt by 2020.

Structural Challenges Pushing AMD Towards Bankruptcy

A. Industry Dynamycs: Where Winner Takes It All

In the semiconductor industry, small feature improvements can yield exponential competitive advantages including lower cost, material usage reductions, lower power consumption and greater performance. The semiconductor industry is characterized by extremely short product life cycles (i.e. upgrade frequency of 12-18 months) thus radical supplier substitutions and market share gains are common when chipmakers are unable to meet the future requirements of customers1.

Advanced Micro Devices, Inc. (AMD)

Furthermore, this industry is highly cyclical, meaning that semiconductor companies are at the mercy of the end consumer’s needs. For example, following Microsoft’s discontinuation of support for Windows XP in 2014, many companies have updated their computers.

This ongoing corporate refresh cycle has boosted many companies’ revenues but not really AMD’s, as the company is over-indexed to the volatile consumer PC segment3. During industry downturns, semiconductor companies focus on R&D and creating innovative products. This means that the companies with the deepest pockets are able to make technological leaps, leaving competitors years behind. Therefore in some markets players can earn quasi-monopoly status, as is the case for Intel in in desktop PCs and servers.

B. Key Industry Trends

Historically, consumers that needed more power tended to buy desktop PCs as opposed to laptops. However, with technology advancements, market demand is pivoting away from desktops, even for professionals and intense gamers. AMD has recognized this trend and is refocusing on processors for laptops, but Intel already has a similar range on the market, which is more performant and more power-efficient.

Advanced Micro Devices, Inc. (AMD)

See full PDF below.

Comments (8)

  • EdCoulter

    I like your typo,”ADM at a point of no return”. It is sort of a Freudian slip. Your report draws the conclusion that AMD is a typical example of a legacy company then works backwards deductively to shoehorn AMD into that conclusion. It made me wonder if you weren’t really thinking about ADM and its corn products.

    May 20, 2015 at 8:54 pm
  • Cem Ce

    i’ve never seen so much BULLSHIT in just ONE PDF Document
    AMD isn’t on the way to get Bankrupt! and there is no “Point of no Return” For AMD!
    Zen and Arctic Island… don’t underestimate them! …

    May 21, 2015 at 4:26 pm
    • Steve Smith

      You say “don’t underestimate them” But How offen has AMD promised a lot just to Over estimate their product and end up flopping? AMD very well could go under they have lost a ton of market in gpu side which was were they were competitive in up til recently.

      May 24, 2015 at 8:07 pm
  • john

    The author is an 1diot… plain and simple and the arguments are all nothing but bullsht. I hope it was worth the money you made publishing this highly “toxic” bullsht… I think the author was either high or really is totally and completely devoid of any link to reality… Seriously seek help fool!

    May 24, 2015 at 10:22 am
  • Steve Smith

    AMD’s market shares been slipping and sliding month after month. So this is a real possibility and you AMD fanboyz call this BS, better open your eye’s as its something very possible to happen.

    If you go look at AMD’s financial reports over last say 5 years, there is a LOT of them in the Red.

    May 24, 2015 at 8:09 pm
    • Killian Khoo

      I am not a fan-boy other anything.
      But if this continue the things look pretty bad for consumers side.

      May 25, 2015 at 4:05 am
  • Luís Guerra Peralta

    After reading this article, now I’m pretty sure that I’ll be buying AMD shares today or tomorrow. Thank you.

    May 26, 2015 at 7:15 am
  • Plaxi

    Make me the CEO and I will show you exactly how to turn it around. Incompetent management who know jack about what is really going on in the industry. AMD will get bought out. You heard it here first.

    May 29, 2015 at 11:37 am

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