thanks to Jerry's flawless execution ---
Advanced Micro Devices Inc was forced to issue a second earnings warning for its third quarter yesterday, as it continues to sustain heavy damage from Intel Corp's increasingly aggressive pricing strategy.
The Sunnyvale, California-based company said that third-quarter revenue would be $766m, down 22% from the second quarter. In August, AMD warned that revenue would slide 15% sequentially, instead of its earlier prediction of 10% to 15%, as it was hit by declining sales of flash memory.
A 10% to 15% revenue drop would have been enough to force the company into an operating loss, it said in August, and yesterday it confirmed that it expects a pro-forma net loss of $90m and $110m, or $0.26 to $0.31 per share. This does not include one-time charges of $80m and $110m. Wall Street had expected a loss per share of $0.12. Last year, sales were $1.2bn in the third quarter, and the company made a $408m net profit.
Yesterday AMD said that in addition to an expected slide in flash sales, it had suffered from extremely aggressive pricing competition in the PC processor market. While volumes had matched the second quarter, it said, Intel had driven down average selling prices through aggressive pricing and cash-backed marketing programs.
A spokesperson for AMD said Intel's market share gives it the casting vote on average selling prices in the processor market. "They're the ones who will dictate the pricing," he said, adding that price cuts by Intel are "focused on the areas where we compete." He claimed that Intel's strategies include rebates on chip sets and market development programs. The end effect, he claimed, is "lots of pressure on customers to become Intel-only."
An Intel spokesperson said the company would not respond directly to AMD's claims, adding that it never discussed the details of its marketing programs. AMD's stance on pricing appears to have changed over the last few months. Earlier this year it maintained it would meet Intel pricing clock-for-clock and in June, was maintaining that it had plenty of room to match pricing action by its much larger rival.
However, by August the company had subtly changed its response to say it would compete on value, not cost. Yesterday, AMD's spokesperson said he could not comment on what AMD's pricing strategy would be going forward.
AMD did not mention any effect from last month's terrorist attacks or the typhoon in southeast Asia that disrupted the operations of many Taiwanese manufacturers. However, it may be that the ripples from these events have yet to work their way up the supply chain to AMD.
Last week's profit warning is the latest in a series of bad news from AMD. Two weeks ago it emerged that PC vendor Gateway Inc was phasing out PCs based on AMD processors. This coincided with AMD's announcement that it was closing two fabs in Austin, Texas, with the loss of 2,300 jobs. |
