ATI Preannounces Q3 results and warns for Q4

[overclocked_enthusiasm]

http://biz.yahoo.com/bw/050606/65641.html?.v=1

In addition to the roughly 10% revenue shortfall from already lowered Q3 guidance, ATI cut Q4 revenue by about 10% as well. More alarming, and what caused me to sell my shares today, was the 520 basis point reduction in gross margins from 34.2% to 29%. Yes, 5.2% in 90 days!! That comes on the heels of another sequential decline in Q2 where gross margins fell from 34.6% to 34.2%. NVDA during the same time has seen dramatic margin expansion into the mid 30's and guided to the high 30's.

Is it as simple as ATI losing the higher margin business (6800 GT/Ultra) to NVDA and having a product mix shift weighted to the lower end (x300) where margins are poor? Or is it something more ominous like yields on x800 XL or R520? Why do I single out x800 XL? Because that is the only major difference in SKUs from last quarter. Did they produce a 16 pipe card that competes with 6800 GT at a great price to regain marketshare at the cost of gross margins? If they are ramping R520 right now wouldn't any yield issues begin to show now?

Operating expenses rose by 9% sequentially from $131 million in Q2 to $143 million in Q3. Other than that and the possible impact of that fire with an ATI supplier WTF is going on at ATI? Is Orton that inept as a CEO? Was R3xx a one trick pony? What changed from last quarter to this quarter? While NVDA has the advantage with NV40/SLI, R4xx isn't a NV30 fiasco so I simply can't understand WTF is going on.

Any opinions would be appreciated.

 

[Geo]

4th quarter ends Aug 31. They were previously expecting a signficant shot of revenue from "new products" in the 4th quarter. Looks like neither CrossFire nor R520 is going to hit soon enough to make that happen.

 

[trinibwoy]

I wouldn't do the whole knee-jerk reaction thing to this news. Granted we don't know what's going on behind closed doors but it's not necessarily a sign that ATi is going to collapse tomorrow. Maybe they can drop to $10 and let me buy in some more

 

[Richthofen]

They need a new lineup that's it.
R4xx and RV4xx can't do it anymore.
They lost the battle of the current generation to Nvidia.
It's pretty obvious.

Revenue was down around 80Mio in 3 months.
Margins declined from 36 to 29% in the same period.
Mercury Research statet that in the DX9 performance market Nvidia increased its share from Q42004 to Q12005 to 70% while ATI declined from around 50 to 30%.
ATI still sells a lot in the lower end and of course in the IGP market but they badly miss revenues in all market segments from the x700 level to the high end.
So comparing to former quarters ATIs business shifted to the lower end.
Why? Well its obvious. The sell fewer products in their current generation than the competition.
The 6600GT still faces no competition. The X800XL while a great product faces huge competition from the 6800GT because pricing on this part has been adjusted by Nvidia and its partners. And of course the 6200 is starting to show an impact.
ATI badly needs a new lineup. I doubt there will be a big change until their new generation is out - at least from the 200$ price tag up to the high end. A R520 flagship alone won't change much.

 

[Geo]

Well, Xbox360 revenue should start flowing 1st quarter (fiscal) I would think. What I haven't heard is if the R520 flagship delay rolls downhill to the mid and low, or if they are still on the same timeframe as the roadmap we saw.

 

[RussSchultz]

http://www.beyond3d.com/forum/viewtopic.php?p=416032#416032

I think they had problems with margins because the market has been dominated by AGP, and their AGP chips required a bridge.

The PCI-E market is opening up, so it's not going to be as bad going forward (unless over compensate and build their new parts with AGP native) http://www.beyond3d.com/forum/viewtopic.php?p=476170#476170

 

[Richthofen]

Well, Xbox360 revenue should start flowing 1st quarter (fiscal) I would think. What I haven't heard is if the R520 flagship delay rolls downhill to the mid and low, or if they are still on the same timeframe as the roadmap we saw.

funny thing with xbox360 though is that its is very likely that M$ has to pay some royalties to nvidia on every xbox360 sold to achieve backwards compatibility to xbox1.

http://biz.gamedaily.com/features.asp?article_id=9761&filter=

 

[trinibwoy]

Very interesting spin - http://yahoo.smartmoney.com/Techsmart/index.cfm?story=20050606&afl=yahoo

 

[Jawed]

I can't imagine many people round here agreeing with this:

It's three quarters in a row when, conceivably, they have the best product offering in the history of the company, and yet they're still disappointing.

Jawed

 

[RussSchultz]

I can't imagine many people round here agreeing with this:

It's three quarters in a row when, conceivably, they have the best product offering in the history of the company, and yet they're still disappointing.

Jawed

Unless, of course, you're talking about financial disappointment, and not technical disappointment.

 

[Mintmaster]

While NVDA has the advantage with NV40/SLI, R4xx isn't a NV30 fiasco so I simply can't understand WTF is going on.

You're right about R4xx being much more marginal "loser" this generation than the FX was last gen, but NVidia had huge momentum ever since the Geforce line started, and XBOX helped too. It took a long time for ATI to see the fruits of their far superior R3xx architechture.

I think NVidia was able to weather the storm with their PR, FX5200 contracts with OEMs, and loyal buyers / momentum. ATI's availability was the other problem, IMO. NVidia learned their lesson with the FX delay, so hopefully ATI will learn theirs now.

 

[trinibwoy]

I can't imagine many people round here agreeing with this:

It's three quarters in a row when, conceivably, they have the best product offering in the history of the company, and yet they're still disappointing.

Jawed

You mean R300 > R420 ? FWIW I think it is.

 

[Geeforcer]

R420 is ATI's equivalent of Voodoo 3 to NV40's TNT2. Voodoo 3 was fundamentally sound chip very well-suited for the games of the day, twice faster then it predecessor although with largely identical feature set. Both V3 and R420 were extension of previous incredibly successful architectures, and in both cases higher end models outperformed the more feature-rich competition, although not by a huge margin. Yet while nothing really wrong wither either design, both failed to generate the same kind of acclaim and exciting as their predecessors, or blow away the competition like V2 and R300 did.

 

[trinibwoy]

Goldman chimes in - cautious but not overly pessimistic. They're just waiting to see how R520 pans out like everyone else.

http://www.forbes.com/markets/2005/06/07/0607automarketscan10.html?partner=yahootix&referrer=

 

[Geo]

Goldman chimes in - cautious but not overly pessimistic. They're just waiting to see how R520 pans out like everyone else.

http://www.forbes.com/markets/2005/06/07/0607automarketscan10.html?partner=yahootix&referrer=

Given the tape-out took place as far back as October, and Taiwan Semiconductor's yields on 90nm have been generally good on other products including the Xbox 360 graphics chip, we believe the delay is due to a design issue.

About the only way I can think of to make that a positive is if they went back to integrate CrossFire more elegantly. But then we really haven't heard they went back at all. . .