AMD Projects Impairment Charge Due to Weak Graphics, Multimedia Business Performance.

Just one day ahead of its meeting with financial analysts Advanced Micro Devices said that the value it paid for graphics and multimedia chip designer ATI Technologies last year was too high and the actual revenues the company gets and will be able to obtain from its graphics and multimedia businesses are below expectations.

AMD: ATI Is Guilty of Everything

According to a statement with the U.S. Security and Exchange Commission (SEC), AMD concluded that the current carrying value of its goodwill which it had recorded as a result of its October 2006 acquisition of ATI Technologies was impaired. The write down will allow AMD to easily explain financial analysts why its current market capitalization ($4.97 billion at press time) is below the price of ATI it paid last year as well as poor financial results and losses with problems that allegedly existed at ATI before the merge.

“The acquisition took place at the moment, when ATI was not really leading in terms of technology… It is not like we acquired ATI and we lost market share. It was just a consequence of [ATI’s execution]: Nvidia had better graphics than ATI back then and that is why AMD lost market share. We also should consider [hardware] cycles of OEMs: if you are missing their cycles, you are out for a while. You have to be [ready] with the right [product] part at the right moment to get a cycle. When you are in, you are going to stay in for a long time. So, the main reason behind the share loss is missing OEM cycles. But we are regaining them now,” recently said Vincenzo Pistillo, director of consumer business development in EMEA region for AMD.

“This conclusion was reached based on the results of an updated long-term financial outlook for the businesses of the former ATI Technologies as part of AMD’s strategic planning cycle conducted annually during the company’s fourth quarter and based on the preliminary findings of the company’s annual goodwill impairment testing that commenced in the beginning of October 2007,” a statement concerning the write-down reads.

AMD’s Graphics Product Group Performs Below Expectations
Formally speaking, ATI Radeon X1900-series graphics cards were considerably more advanced than Nvidia’s GeForce 7900-series offerings at the time when AMD acquired the Canada-based graphics chip developer. But ATI, which at the time was already AMD’s graphics product group, could not launch its DirectX 10-supporting high-end offering last November and then was also late with mainstream DX10 graphics products.

But market share declines emerged not because ATI could not offer a competitor to Nvidia’s GeForce 8800 GTX, which still retails for $549 and higher. Just after AMD and ATI announced the transaction, partners of Intel and ATI annuled orders onto ATI Radeon Xpress-branded chipsets for Intel processors, which dramatically lowered ATI’s market share from 27.6% to 20.3%, according to Jon Peddie Research (JPR) data. However, already in Q4 2006 the market share of AMD’s graphics product group rebound to 23%, only to gradually decline to 19.1% in Q3 2007.