AMD warns of big Q3 revenue miss

By Duncan Martell

SAN FRANCISCO: Advanced Micro Devices Inc., citing a weak personal computer market and a build-up of chips among PC makers, warned its third-quarter revenue would fall 18 percent below analysts' expectations, leading to a hefty operating loss. During last year's third quarter AMD reported revenue of $765.9 million.

AMD, based in Sunnyvale, California, said it now expects revenue of about $500 million for the third quarter ended Sept. 29. That fell short of the average analyst forecast of $614 million in revenue and a loss of 49 cents a share, as compiled by Thomson First Call. In July, AMD said it expected third-quarter revenue to "improve modestly" from the second quarter's $600 million.

The company said it had slowed shipments of processors during the quarter because chip inventories had built up among PC makers and their suppliers, as demand did not pick up. That move, in turn, whacked processor sales in terms of units, revenue and average selling prices.

In addition to lackluster back-to-school PC sales and overall weak demand, a lack of processors running at higher clock speeds relative to Intel's has hurt AMD, analysts said, leading the company to sell more lower-priced versions of its Athlon and its lower-priced Duron processors.

"AMD is not getting the benefit of having the highest-end processors in the marketplace and that hurts their ability to support their average selling prices," said Dan Scovel, an analyst at Needham & Co. "The weakness is not completely surprising but the magnitude of the miss clearly is."

AMD's shares fell 18 percent in after-hours trade following the announcement. In regular trade, the stock rose 10 cents, or 1.9 percent, to $5.37 on the New York Stock Exchange. AMD shares have tumbled 66 percent this year, compared with a 54 percent decline in Intel shares. Intel shares fell 14 cents to $14.16 following AMD's news. The stock had declined 37 cents to $14.30 in regular Nasdaq trade.

Analyst Eric Ross of Investec said the PC industry was seeing "lackluster growth off of a miserable June," noting the beleaguered industry "definitely has been weaker than expected." While shipments of PCs typically rise 10 percent to 15 percent in the third quarter, this year the increase will likely be 5 percent, he said.

AMD's warning was the latest in a spate of bad news for the company, which has long been hobbled by inconsistent financial results, and has been hit hard by production problems. The company said in mid-September it was delaying the introduction of a widely anticipated desktop microprocessor, code-named "Clawhammer," by at least three months.

AMD's big revenue miss contrasts with the mid-quarter update that its far larger rival, Intel, gave in early September. Then, Santa Clara, California-based Intel tightened its revenue forecast for the third quarter, pushing it slightly below the mid-point of the $6.3 billion to $6.9 billion forecast it gave in July.

Intel said then it expected third-quarter revenue of $6.3 billion to $6.7 billion, which was still within the range of analyst expectations. "A lot of this is AMD-specific," said Dan Niles, an analyst at Lehman Brothers. "As Intel continues to push gigahertz speeds aggressively, AMD is falling behind. It's really hard for us to see how their situation improves a lot in the next six months."

Don’t paint Intel with the same brush

Niles cautioned against painting Intel with the same brush. For instance, Dell Computer Corp. on Tuesday raised guidance for its third quarter, suggesting it continues to gain market share against rivals. "Dell had a good quarter and Dell doesn't use AMD. They're 100-percent Intel."

AMD's revenue warning, however, underscores the choppy recovery that the semiconductor industry is experiencing. Cirrus Logic Inc., which designs chips for the consumer electronics industry, on Monday cut its sales outlook, noting it remained cautious about consumer spending in the upcoming, crucial holiday shopping season.

Also on Wednesday, chipmaker Micrel Inc. said it expects to report a loss before extraordinary items in the third quarter, citing lower sales to computing and networking markets in Taiwan combined with weak sales in North American distribution channels.

© Reuters