Beleaguered chip underdog AMD is not shipping any new gear to channels this quarter as it bites the bullet to clear existing stock swilling around the industry, estimated to have been in excess of $100m.
A combination of bad forecasting, sliding PC demand and weak supply chain controls led to the inventory nightmare, and channel partners are complaining that broker activity means prices remain unstable.
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Things came to a head in calendar Q4 when AMD decided to confront the problem head on, sucking down a $58m charge enabling it to “lower [the] cost of market inventory adjustment”.
Speaking at the Goldman Sachs Technology conference this week, Devinder Kumar, senior veep and CFO, admitted that given market inventory the “overall channel space is not healthy”.
“If you’re selling and it’s not somehow getting consumed by the end customer at some point, that’s a problem”.
The chief beanie said that along with CEO Lisa Sue, he’d looked at situation in Q1 and concluded, “we might as well go fix” the problem, leading the “aggressive action”.
“We’re willing to take the pain to go and correct the channel inventory situation as opposed to continuing to put the parts in the overall channel,” he said.
“We are encouraged by what we’re seeing in the Q1 timeframe even with the few weeks that have gone,” he added.
Channel partners confirmed that AMD is not selling new to kit to them as it works through the glut of stock, which should taken until the end of next month, a point echoed by Kumar.
“AMD is in the middle of a big clear out,” one channel partner claimed. “They created a huge grey market and are trying to get it back under control.”
He added that the chip maker had been cutting deals with brokers.
Darren Grasby, AMD corporate veep of component channel sales and GM for EMEA – who took over from previous channel overlord Roy Taylor in the autumn – told El Chan the 2015 goals are clear:
“We need to build great products, deepen our customer relationships and simplify our business. We are focused on taking aggressive actions to help drive sales of AMD products currently in the channel.”
He said customer feedback on the action to “create a healthier channel” and “upcoming product introductions” indicate the year will be “successful”.
In Q4 sales fell 22 per cent to $1.24bn and a net loss of $364m, but for the year turnover grew four per cent to $5.51bn and it recorded a profit of $51m compared to a loss of $83m in 2013.
The company was in restructuring mode at the start of this year with the exit of John Bryne, GM for the computing graphics business, chief marketing exec Colette LaForce and chief strategy officer Raj Naik.
The moves follow the appointment of Su in the autumn, who decided to chop seven per cent of the workforce to slash costs. ®