WSJ on Q1:
AMD Emphatically Reverses Loss
With Profit Surge in First Quarter
By KHANH T.L. TRAN
Staff Reporter of THE WALL STREET JOURNAL
Advanced Micro Devices Inc. reported first-quarter profit that was twice
what Wall Street expected, driven by strong demand for its Athlon
microprocessors and lower costs that helped swell gross profit margins.
The Sunnyvale, Calif., company also told analysts it expects increasing
demand for its personal-computer chips in the second quarter. AMD's
upbeat outlook contrasts sharply with fears of a PC market slowdown that
rocked the stock market Wednesday -- and shares in Hewlett-Packard
Co., International Business Machines Corp. and Microsoft Corp. in
particular -- and could help restore a measure of confidence in some
technology stocks.
"We think the PC market is strong and it's getting stronger," said W.J.
"Jerry" Sanders, AMD's chief executive officer, in a conference call
following the earnings release.
AMD reported net income in the first quarter of $189.3 million, or $1.15 a
diluted share, reversing a year-earlier loss of $128.4 million, or 88 cents a
share. Analysts surveyed by First Call/Thomson Financial were expecting
the company to earn 58 cents a share, a consensus that was revised
upward last week based on AMD's projection that revenue would be
better than expected.
Revenue surged to $1.09 billion from $631.6 million a year earlier, as the
company shipped 1.2 million units of its Athlon chips, double the number
shipped during the fourth quarter. The company said that it sold a total of
about 6.5 million PC chips in the first quarter. Its profit margins increased
to about 45% from 40% in the fourth quarter. Some analysts said they
were expecting margins of 39% to 40%.
The results were released after regular New
York Stock Exchange composite trading
ended at 4 p.m. Wednesday, at which time
shares of AMD were at $64.50, down $3.50.
In after-hours trading following the
announcement, AMD's shares surged to $76.
Mr. Sanders, calling the quarter the best in the company's history, said it
"was a great start to the new millennium at AMD ... Athlon is clearly a
home run."
AMD, usually a distant No. 2 to Intel Corp. in the microprocessor
business, has lately been challenging the leader for the speed crown. For
that reason, AMD has been able to sell more-expensive chips that boast
higher profit margins, rather than reducing prices to entice customers. The
higher mix of high-end products was one major factor in the earnings
surprise.
The first quarter is usually a relatively slow period for PC sales. But in the
most-recent period, analysts said, the market benefited from a healthy
economic environment, increasing efforts to build high-speed Internet
networks and growing demand for new consumer electronics such as
handheld organizers and cellular phones.
Jonathan Joseph, an analyst at Salomon Smith Barney in San Francisco,
said it is "very encouraging" that AMD expects to increase output of its PC
processors in the second quarter. And while there may not be blow-out
demand for personal computers, sales are still stronger than expected, he
said. AMD said it anticipates to ship about the same number of PC chips
in the second quarter and that the number of Athlon processors will
increase to 1.8 million units.
AMD saw its market share rise to 17% from 16.6% in the fourth quarter,
according to Mercury Research Inc. Intel also edged up with first-quarter
market share of 82.1% from 82% in the fourth quarter. AMD said its
average selling prices for the Athlon chips and its K6-chip family rose to
more than $90 in the first quarter from about $80 in the fourth quarter.
"In the short term, they have executed well," said Ashok Kumar, an analyst
at U.S. Bancorp Piper Jaffray in Menlo Park, Calif. But he cautioned: "The
competition with Intel will step up to a much higher plane."
Mr. Kumar predicted that Intel will gain market share in the low-end chip
sector with its new Celeron processor, which will cost about the same as
the chips in AMD's K6 and K6-2 families. He said he expects AMD to
counter the new Celeron with a low-cost version of its Athlon chip dubbed
Spitfire. But because the Spitfire would cost more than the Celeron to
produce, AMD may have difficulties in responding to price cuts from Intel,
Mr. Kumar said.
In response, AMD asserted that the Spitfire would be cost-effective and
competitive with the Celeron while showing high performance.
While most of the company's profit surprise came from operations, about
12 cents a share of its profit came from non-operating income, including
sale of some property in Ireland. AMD also paid no tax in the period,
because it was able to carry forward benefits from previous losses. |
