You've confused revenue with profit. They are not the same thing. AMD has been losing money for most of its existence and almost went bankrupt on a number of occasions. This renders your points completely invalid.
I have not. I used the term "gross profit," which is reported on their annual income statement exactly as I suggested. You can argue whether I should have talked about their net losses, but you can't claim I've confused anything. You don't need to operate at a net profit in order to be able to devote resources to a strategy that you value as a company, but you do need cash flow.
For those of us out of the loop, if AMD has been "losing money for most of its existence" and "almost went bankrupt on a number of occasions", then how is it still alive? Did it make a ridiculous amount of money at some points?
AMD has had ups and downs, but over the past 15 years they've had a net loss of $7 billion. Yes, they've had some good years too. They made over a billion dollars in 2000 alone, and they've been knocking around since 1969. And they've been written off for dead many, many times.
That being said, the current situation is bleak, and no, they never made a ridiculous amount of money. They've had to go to pretty extreme lengths not to go under already (eg, selling off their headquarters building, then leasing it back, just to scrape together some quick cash). They're very, very cash strapped. So much so that the news they signed a somewhat nebulous licensing deal with a Chinese company to help them make servers caused their share price to jump 52%, just because they'd be getting ~$300m in licensing fees.
Thanks! But I still don't understand how they're still alive?
How can you lose billions of dollars and still be in business? Are they borrowing the money from someone? Where is the money they don't have coming from?
They have raised cash by taking on investment from the Abu Dhabi Investment Authority (the sovereign wealth fund) and also selling off some major assets, most notably their fabs (GlobalFoundries) and even their HQ building. It is also worth noting that large accounting losses do not always correspond to large negative cash flows. Stuff like depreciation (though less of an issue now without the fabs) and writing off "goodwill" from e.g. their ATI acquisition cause large paper losses without actually adversely affecting their cash position.
Let's say you sell $9 billion of shares, and build a massive fab with it. You believe it'll have a working life of about 15 years, before changing technology makes it worthless.
Each year you spend $100 million on salaries, rent, and materials, and you earn $500 million in sales, leaving you with $400 million in the bank at the end of year 1, $800 million after year 2, $1.6 billion after year 4, etc.
Pretty good, right? Not really.
You're cash flow positive to the tune of $400 million/year, but you're not profitable. You spent $9 billion on that fab; since it'll last for 15 years that means each year costs about $600 million. Or to put it another way, at the end of 15 years you'll have $6 billion in the bank, but you started with $9 billion. Turning $9 billion into $6 billion is the opposite of a profit. And since it's not enough to build a new fab, it's also the opposite of "having a functional business".
Another example might be selling off a profitable business for an injection of cash. The cash helps you pay salaries and keep the lights on, but if that's all you do with it you're now even less profitable than when you started. Or as in AMDs case, you could sell off your headquarters, then lease it back. You get a pile of cash initially, but you then have to pay it all back and more just to keep using your headquarters, and the increased costs will lower profits.
Similarly, if you can convince people to keep investing, you can run keep running a loss but not run out of cash.
(All numbers utterly hypothetical. I'm also simplifying a lot.)
That's a very clueless way to answer their question.
Accounting has several layers:
- Cash flow: this is what you'd look at for your lemonade stand. Actual money comes in and goes out (either "cash cash" or you bank balance, both is "cash" in this regard)
But that layer isn't the most important one for incorporated companies. Yes, running out of cash is a problem. But what usually / actually happens is failure on the "value" level:
- Your company has a value of which cash is only one, usually small, part. Stuff you own, like buildings and patents and brands are another. So is debt your customers have with you. On this level, you can spend money without any effect on the value: If you buy a skyscraper in Manhattan, you may spend %2 billion in cash, but you get a $2 billion building in return. You can also increase the value ("make a profit") without actually getting any money: if you sell the skyscraper for $4 billion on December 20th, 2016, you've made a $2b profit in 2016, even though the money will only arrive in 2017.
The reasoning is that this system results in a more accurate picture of a company's finances.
Well, no; it doesn't really even impact whether you pay dividends/taxes or not, but it does impact when you pay them. It's not that difficult to shift things across financial years, although eventually you'll show the profit/loss accurately, cumulatively.
You can see this by looking at their balance sheet or cash flow statement. Easiest to see these on Yahoo Finance or Google Finance.
Looking at the quarterly data, as of Sept 2016, you can see in the Balance Sheet, there is a "Capital Surplus" line showing they have raised $8.2B of equity over the life of the Corp. Now look at the "Retained Earnings", they have lost $7.7B of it. They also have $1.6B in debt.
Your link is broken, below is the correct one. More importantly, Intel wants AMD to stay alive and keep vaguely competing with them since they avoid significantly worse anti-trust rulings in the future (here is a current one[1]) due to there being no active x86-64 competitors.
Additionally, think about Google, Amazon, MS Azure and all the other big players who push large volume on Intel's higher end SKUs, what do you think they will do if Intel becomes their sole source vendor? I'd predict all 3 will take their current dabbling in ARM servers and amp it up, since being captured by a single vendor is a serious issue for all of them.
I don't remember where I read this, but as I understand it, Intel is required by various contracts (military, aerospace, various other mission-critical stuff) to not become a monopoly on certain classes of products. In other words, if AMD went under, Intel would have to give the x86 license to someone else.
Thanks! But what does "infused them with money" money mean? They wrote them a check for a few billion dollars? Would you mind explaining like I'm completely clueless (which I kind of am)? I literally don't know (or if I did, remember) anything about this so the missing details are not helping. Thanks!
Intel actually gave about 1.25B$ to AMD in 2009, in order to rid itself of an unfair competition and patent claim. This helped AMD to stay afloat. Without it, Intel would be in an effective monopoly position and that would bring in all sorts of restrictions (due to competition laws particularly in the US and EU) it doesn't want to have.
