AMD has large Q2 loss; forecasts revenue growth

By Duncan Martell

SAN FRANCISCO: Advanced Micro Devices Inc., Intel Corp.'s principal rival in the market for microprocessors, on Wednesday reported a large second-quarter loss, hurt by weak PC sales and bruising competition with its larger competitor. It forecast a mild revenue improvement in the second half of the year, but said it expects a third-quarter loss.

AMD's second-quarter revenue fell 39 percent from a year ago, and the company on its conference call said it believed it had lost a couple of points of market share.

The performance contrasted with that of Intel, the world's largest chipmaker, which on Tuesday, reported revenue that was flat from the year-ago quarter and said it believed it had gained two or three points of market share, its highest level in two years.

"This has been the most competitive scenario I've seen in my career," said Hector Ruiz, AMD's president and chief executive, in an interview. "Our customers, they're also in a very competitive environment themselves, and so far Dell seems the only one making some headway and unfortunately for us they're not one of our customers."

AMD's results marked its fourth straight quarterly loss and analysts do not forecast it turning a profit until the fourth quarter of 2003.

Sunnyvale, California-based AMD posted a loss of $184.9 million, or 54 cents a share, compared with year-ago net income of $17.4 million, or 5 cents a share. Revenue fell to $600.3 million from $985.3 million. It was AMD's biggest loss since the second quarter of 1999.

Analysts had expected AMD to post a loss of 45 cents a share, within a range of a forecast loss of 28 cents to 56 cents, according to Thomson First Call. Revenue was pegged at $600 million.

AMD confirmed on its call that the second half will be stronger than the first for the personal computer industry. Intel had said that spending on technology by businesses had shown no signs of picking up, but it still sees a stronger second half, which is typically buoyed by back-to-school and holiday spending.

AMD forecast overall third-quarter revenues would "improve modestly," in line with typical seasonal patterns, but said it expects to report a loss for the quarter. Shipments of PC processors will follow seasonal patterns, meaning they will increase. It also said it expects sequential sales growth of flash memory chips, which are widely used in cell phones. Analysts expect AMD to post a loss of 34 cents in the third quarter.

AMD on July 3 had cut its second-quarter revenue forecast to about $600 million, down from a range of $620 million to $700 million it had forecast on June 18. In April it had projected revenue of $820 million to $900 million.

AMD said that sales of its Athlon and Duron processors, which compete with Intel's Pentium 4 and Celeron chips, fell 35 percent to $380 million from $588 million a year ago, and declined by 44 percent from $684 million in the first quarter. Processor unit shipments for desktop PCs were down while mobile processor shipments were flat, AMD said.

Overall, AMD shipped over 6 million processors in the quarter, executives said on the call, down roughly 20 percent from 8 million in the prior quarter. In addition to a PC industry that Ruiz described as "the perfect storm", AMD was also hit with falling average prices for its chips, due to a shift toward lower-priced chips by consumers.

Dan Niles, semiconductor analyst at Lehman Brothers, estimated that Intel shipped about 31 million processors, down 8 percent from the first quarter. The disparity of the decrease between the two suggests Intel gained market share.

Also, AMD suggested on the call that more PC processors were shipped in the second quarter than ended up in PCs or notebook computers. If that were the case, as it was in the first quarter, it could mean excess inventory of processors from both Intel and AMD, Niles said.

"If it's true, it's pretty troubling for the third quarter," Niles said. "And the reason you give it more credence this time around is because it happened last time.

Sales of flash memory chips fell 45 percent to $175 million from $316 million a year ago and were up 9 percent from $160 million in the first quarter, AMD said.

Shares of AMD fell 7 cents to $9.33 on the New York Stock Exchange on Wednesday before its results were released, which came after the close of regular U.S. trading. AMD stock has tumbled 41 percent this year. Intel shares closed up 5.9 percent, or $1.08, at $19.44 on the Nasdaq.

 © Reuters