AMD beats targets but sees slowdown
By John G. Spooner
Special to CNET News.com
April 18, 2001, 3:00 p.m. PT
Advanced Micro Devices reported first-quarter earnings Wednesday that topped
analyst expectations but warned of a sales drop in the current quarter.
The company reported income of $124.8 million, or 37 cents a share, on revenue of $1.19
billion, excluding charges. Income was down 34 percent from the same quarter last year, when
the company reported income of $189.3 million, or 55 cents a share.
Analyst polled by First Call had been expecting a profit of 33 cents a share on revenue of about
$1.13 billion.
AMD's sales were up 9
percent from the fourth quarter
of 2000, thanks in part to
strong sales of its Athlon and
Duron chips. However, the
company warned that sales
for the second quarter could
be down as much as 10
percent.
"The second quarter is always
the worst quarter," CEO Jerry
Sanders said in a conference
call after the announcement.
"We didn't stuff the channel
so much in the fourth quarter,
but the industry did."
That means that as the
industry as a whole works
through excess inventory, "this is going to be the toughest quarter," Sanders said.
AMD's year-to-year sales decline is the result of softening markets for products, such as flash
memory, overpowering gains in PC processors, AMD executives explained.
AMD rival Intel, for its part, also pointed to declines as high 7.5 percent in its earnings call
Tuesday. Intel pointed to price cuts and economic uncertainty as the cause for its declines.
Sanders saw some opportunity in the PC market. "We feel if we hold flat, we'll actually gain a
little" marker share there, he said.
"I certainly think that the second half is going to be better as a whole, but the computer
industry is going to lead us out," Sanders said.
AMD's processor shipments, totaling 7.3 million units, were up 27 percent from the fourth
quarter and 126 percent from the first quarter of 2000, the company said. AMD shipped 6.5
million Athlon and Duron chips and 800,000 K6-2 chips for an average selling price of just over
$90.
The company intends to introduce chips based on its new design, called Palomino, in May.
AMD will allocate all of its initial Palomino production to mobile versions of the chip.
"We plan to launch the desktop version of Palomino at 1.5GHz" in the third quarter, Sanders
said. AMD last month announced delays for desktop versions of chips based on Palomino and
the low-cost Morgan design.
AMD finished its first quarter with a good position in the PC market, analysts said.
The chipmaker was able to keep inventories from ballooning and at the same time improve its
market share. AMD's share of the PC processor market rose from 17 percent in the fourth
quarter of 2000 to 21 percent in the first quarter of 2001, according to preliminary numbers
released by Mercury Research.
Intel's share, on the other hand, fell from 81 percent in the fourth quarter to 77 percent in the
first quarter, according to the preliminary numbers.
While only four points, it was the largest jump in market share AMD has seen since it
launched its Athlon processor in 1999. At that time, AMD jumped from 12 percent to 16
percent between the third and fourth quarters of 1999. It took the company five more quarters to
move from 16 percent to 17 percent, according to Mercury.
"AMD, we don't think, suffered any decline in unit shipments," said Dean McCarron, principal
researcher at Mercury. Meanwhile, Intel reported a decline in chip sales for the first quarter.
The problem stems mostly from excess inventory in the PC market, one of the chief markets
served by AMD, McCarron said. PC makers had "component and also finished product
inventories up the wazoo" in the fourth quarter, he said.
But sales could rebound in the second quarter.
"A lot of the inventory has burned off, so sales are coming back," McCarron said. However,
sales are lower overall compared with last year, so "it's not coming back to the same level."
"Basically the ones that got hammered (in the first quarter) are the ones that will see" an
upswing in the second quarter, he said.
While AMD fared well in the first quarter, the company faces pricing pressure from rival Intel
going into the second quarter. Intel may well take back some of its market share by cutting
prices on the Pentium 4 chip by up to 50 percent.
The price cuts are expected at the end of this month, as Intel attempts to push the Pentium 4
into PCs priced between $1,000 and $1,500, the mainstream of the PC market.
"We believe they (Intel) are going to get much more aggressive on the pricing," Sanders said.
But he doesn't intend on getting into a price war.
Quoting George Bernard Shaw, he said, "Don't fight with pigs. You get dirty, and the pigs like
it."
"We're not going to get into a price war with Intel," Sanders said. "We will match their pricing
for a given clock speed...and we'll offer more delivered performance."
Meanwhile, AMD has its work cut out for it in the corporate market. The company will look to
parlay Athlon's success in consumer PCs into the business market with new mobile and
workstation-server versions of the chip. Adding corporate sales will help AMD weather current
economic woes and meet its goals for the end of the year. But the company faces an Intel-only
mindset among corporate IT decision makers and product managers at large PC
manufacturers, analysts have said.
AMD will spend $1 billion on capital expenditures for 2001, up $200 million from 2000. Most of
the money will go to finish a new plant and move to a new 0.13-micron process for smaller,
faster chips.
The company's processors should reach 2GHz at the beginning of next year, Sanders said. |
