AMD Sees Profits Ahead of Street View
Nice headline and also some nice comments from the analysts for a change. So is it TSMC or UMC?
Paul, what can you do with this gem? "We're really good at using other people's money,'' Sanders said
By Duncan Martell
dailynews.yahoo.com
PALO ALTO, Calif. (Reuters) - Advanced Micro Devices Inc. (NYSE:AMD - news), which last month reported its first quarterly loss in nearly three years, on Thursday forecast it would return to profitability two quarters sooner than analysts now expect as the No. 2 maker of computer microprocessors continues to slug it out with rival Intel Corp. for market share.
AMD, Intel's (Nasdaq:INTC - news) chief competitor in the market for microprocessors, also said at a financial meeting for analysts held at its headquarters in Sunnyvale, California, that it would -- for the first time -- outsource processor production to a custom chip-making company.
While AMD hasn't disclosed the name of the plant, or foundry, it is likely located in Taiwan, home to most of the world's foundries. Taiwan Semiconductor Manufacturing Co., TSMC, is the world's biggest contract microchip maker and United Microelectronics Corp. is the second largest.
With the huge cost of around $2 billion to build a new chip plant, and the large amounts of chip-making capacity now available, Chairman and Chief Executive Jerry Sanders said it makes sense to take advantage of other companies' investments in chip-making plants.
``We're really good at using other people's money,'' Sanders said, adding that it may outsource as much as 25 percent of its microprocessor production.
AT ODDS WITH WALL STREET
Concerning guidance and profitability, Sanders said fourth-quarter revenues should be flat to up by a ``high single-digit'' percentage from the third quarter, similar to the forecast given on Oct. 17, when AMD reported third-quarter results. At that time, it said fourth-quarter revenues could rise as much as 10 percent from the previous quarter.
``We are confirming our overall guidance that sales will rise in the single to high-digit percentage on record unit shipments (of microchips),'' Sanders told analysts. ``We believe that semiconductor industry revenues overall are currently troughing.''
Sanders' forecast for his company is at odds with what Wall Street is expecting.
At the meeting, Sanders said that AMD would return to profitability in the second quarter of 2002. But analysts surveyed by research firm Thomson Financial/First Call, on average, don't expect AMD to post a profit -- of 4 cents a share -- until the fourth quarter of next year.
Banc of America Securities analyst Doug Lee said he would not change his estimates, which don't call for a profit until the fourth quarter of next year, despite Sanders' upbeat forecast. AMD has a history of reporting a string of profitable quarters and then unexpectedly reporting a loss of deeply disappointing results.
``It's still kind of 'show me,''' Lee said, noting the depressed semiconductor market and declining unit shipments of personal computers this year and an uncertain market in 2002.
Seasonal patterns in the personal computer industry, however, could push processor revenues down in the first quarter of 2002, Sanders said, and demand for flash memory ''remains uncertain.'' A sequential decline in the PC industry from the fourth quarter to the first period of the next year is typical for the industry.
Chip sales had their worst year ever in 2001, as the dot-com bubble burst and weaker economies pushed demand lower, and are forecast to tumble 31 percent this year to $141 billion, according to the Semiconductor Industry Association.
AMD shares fell 8 percent, or $1.12, to $12.40, while the Philadelphia Stock Exchange semiconductor index, a proxy for the sector, fell 2.3 percent.
MAKING CHIPS MORE CHEAPLY
AMD also said that it will be able to cut the costs of making its microchips more than Intel. In its own presentation to analysts on Oct. 30, Intel said manufacturing costs for its microprocessors will decline 25 percent by the fourth quarter of 2003 from the fourth quarter of this year.
By comparison, AMD President and Chief Operating Officer Hector Ruiz said that in the same time frame, his company will have shaved production costs by 40 percent, partly by leveraging agreements with outside foundries.
``These guys have managed to remain competitive as a much smaller company,'' said Merrill Lynch analyst Joe Osha.
Sanders also reiterated his goal of 30 percent of the market for microprocessors, indicating . He said that AMD will likely finish the year with 21 percent market share, up from 17 percent at the end of 2000. Intel has virtually all of the remaining share of the processor market, about 80 percent.
``AMD looks to be in about as good a position as you can get,'' said Needham & Co. analyst Dan Scovel. ``The slugfest between these two will continue.'' |
