AMD issues Q2 warning, cites weak chip pricing

Lisa Baertlein

PALO ALTO: Microchip maker Advanced Micro Devices on Thursday warned that its

fiscal second-quarter earnings would be a fraction of what Wall Street had

forecast, hurt by pricing pressure in the personal computer-chip and flash

memory markets.

Sunnyvale, California-based AMD said net income would be in the range of 3 to

5 cents per diluted share, rather than the 27 cents analysts expected. Sales for

the quarter ended July 1 posted a 17-percent sequential drop, instead of the

10-percent decline the company had forecast earlier.

AMD shares, which finished Thursday's regular trading session $1.12 lower at

$28.64, fell to as low as $24 in after-hours trade on Island. Shares of rival

chip maker Intel Corp. shed more than $1 from their close of $29.84 following

AMD's warning.

'A country mile'



"They missed profit by a country mile," said Banc of America
Securities analyst Douglas Lee, who had expected AMD's per-share results to be

about 5 cents lighter than the Street's consensus.

The company - which now expects to report sales of $985 million on July 12 -

also disappointed on the revenue side, falling short of analysts' forecast for

$1.08 billion, according to Thomson Financial/First Call.

AMD, which joined data storage giant EMC Corp. and systems management

software maker BMC Software Inc. in Thursday's warnings parade, pinned the blame

on two factors. "First, demand for flash memory devices was and continues

to be weaker than anticipated," AMD said in a statement.

The company is a big player in the mobile telephone flash memory market. Its

technology allows users to turn their handsets on and off without losing stored

data such as telephone numbers.

"Second, competitive pressures in the PC processor market depressed the

company's average selling prices ... (but) despite continuing weak PC market

conditions and very aggressive pricing by Intel Corporation, the company

achieved record unit sales of AMD Athlon processors."

The company said it had sold a record number of processors for personal

computers, including its star Athlon chip, which helped drive strong results in

the previous quarter relative to its bigger rival, Intel.

During the first quarter AMD's net income dropped 34 per cent, a strong

performance compared to an 82 per cent drop at rival Intel, which analysts had

expected to respond by dropping prices on its own speedy chip, the Pentium 4.

"It's more the economy than competition," since many vendors also seem

to be pressured, said Roger Kay, a senior analyst at International Data Corp.,

which reports on and sells to technology companies.

"The company (AMD) may well be taking share, but at lower unit prices

and ultimately profits," Kay said.

Banc of America's Lee, however, said investors should not take AMD's earnings

miss as a sign that the still-weak technology sector is cratering again.

"AMD is not anywhere near as profitable as it should be," he said.

(C) Reuters Limited 2001.