Advanced Micro Devices Inc (AMD)

[jhalada]

I_banker,

SGI made a bet on Itanium, and, as you can see from their stock price, and from their income statement:
http://www.sgi.com/company_info/investors/statements/q104incomestatement.html

They lost.

Actually, their balance sheet is even more interesting reading:
http://www.sgi.com/company_info/investors/statements/q104balancesheet.html

At the rate they are going, they will be out of cash in a little over 2 quarters. But wait, the current portion of long term debt is more then 2x their cash on hand.

It looks to me that Itanium is taking them straight to bankruptcy. They are trumpeting their wins:
http://biz.yahoo.com/prnews/031023/sfth050_1.html

I guess they may be looking for a white knight. And for a good reason. This is a company that is on life support, about to expire if left to their own devices. Here is what the management says about their financial condition:

We are committed to our goal of re-establishing profitable operations and positive cash flow. While a forecast of future events is inherently uncertain, we believe that the combination of our current resources and cash expected to be generated from our fiscal 2004 financial plan will be sufficient to meet our financial obligations through fiscal 2004. If we experience a material shortfall versus our plan for fiscal 2004, we will take all appropriate actions to ensure the continued operation of our business and to mitigate any negative impact on our profitability and cash reserves. We have a range of actions we can take to achieve this outcome, including but not limited to expense-related actions such as further reductions in headcount-related expenses, additional consolidation of administrative functions, re-evaluation of our global distribution model, and delayed implementation of information systems initiatives. We also can take actions to generate cash by selling non-core businesses, licensing intellectual property, seeking funding from marketing partners and key government customers, and seeking further equity or debt financing from strategic partners or financial sources. See "Risks That Affect Our Business."

We have approximately $230 million of 5.25% senior convertible notes that will mature on September 1, 2004. If we are not able to restructure a substantial portion of these notes to extend the maturity on terms satisfactory to our secured lender by March 2004, our secured credit facility will become due in June 2004. At September 26, 2003, our obligation under this facility, net of restricted cash collateral, was $27 million.
http://biz.yahoo.com/e/031110/sgi10-q.html

I don't know if HP is going to pay any real money for this company. HP may wait for the bankruptcy court and get some bargains. Intel can provide with a "cash infusion" to keep SGI alive. Or, to make it less obvious (that a company that "bet the company" on Itanium went under), Intel could just give all the Itaniums to SGI for free, you know, Intel can just "ship" them to SGI. It would help SGI's cost of sales. Who knows, maybe SGI could break even if Intel gives them the Itaniums for free (if Intel is not doing it already). But that pesky debt payment is still on the horizon...

Joe