ATI stock tumbles on surprise loss
Graphics chipmaker posts surprise quarterly loss of $445K
FROM CANADIAN PRESS
ATI Technologies Inc., a global leader in computer graphics chips fighting competition from Nvidia and Intel, has reported a quarterly loss of $445,000 US — versus a year-ago profit of $48.6 million — and cut its sales hopes for the current quarter.
ATI shares tumbled more than 10 per cent to their lowest level in two years after the news, trading this morning at $14.10 Cdn on the Toronto stock market, down $1.61.
The company’s third quarter ended May 31 was “a challenging and disappointing quarter that fell well below our expectations,” CEO David Orton acknowledged in a conference call with analysts, while promising “growth and momentum in the coming quarters.”
ATI, which reports in U.S. dollars, said revenue was up nearly eight per cent from a year earlier at $530 million US, but profit margins were eroded, particularly in the chip business for personal computers.
The third-quarter loss amounted to nil per share, or a profit of three cents per share before $10.4 million in stock-based compensation. That was down from year-ago earnings of 19 cents per share and below the Thomson Financial analyst consensus expectation of a profit of seven cents per share before one-time items.
For the fourth quarter, the company (TSX: ATY) now predicts revenue of $550 million to $580 million US, reduced from the $600 million it estimated June 6 “due to a more conservative expectation on the ramp of new products.”
ATI fell behind archrival Nvidia Corp. at the cutting edge of the gaming market in recent months, Orton admitted to analysts.
“The combination of putting two graphics cards into an enthusiast performance segment part of the market is a compelling solution,” he said. “We are later to market than our competitor with that capability.”
He said sales of chips for personal computers normally decline seasonally in the March-May period, but “we experienced much more than seasonal softness our desktop discrete business ... less related to volume, but more to an unfavourable product mix.”
Overall gross margin for the quarter was a “disappointing” 29.1 per cent, down from 35.1 per cent a year ago.
ATI experienced cost increases and lower-than-expected yields during the quarter, partly because of a rapid shift in chip production to lead-free technology.
Margins were also undermined amid “very strong growth in our chipset business” which currently provides only a “high-single-digit” percentage profit margin.
However, in the future for the integrated chipset segment, which now accounts for about 20 per cent of revenue, Orton sees “nothing but green fields in terms of opportunities and improved margins.”
ATI’s custom-chip applications include the Xbox 360, to be released by Microsoft before Christmas with hopes for sales of 10 million units within about a year.
Orton said the PC segment showed 22 per cent volume growth over a year ago, but revenue did not keep pace as sales skewed toward “mainstream and value products as opposed to performance products.”
In chips for handheld devices and digital televisions, ATI “continued to receive strong acceptance from a broad range of customers, and revenue grew 30 per cent,” Orton said.
He noted a high-end Samsung cellphone just released in Korea as a new application, “and watch for more announcements in this area in the near future.”
Chief financial officer Patrick Crowley said management is concentrating on “cost improvement programs, a focus on new product introductions, and achieving efficiencies in R&D.”
[Harry: Not sure why there is such a large stock based compensation charge when the result were so lousy. The greater than expected weakness in demand in this Q is a big concern. If NVDA confirms it will mean PC demand is slowing. A big negative for INTC and the overall tech market. The COMPX does not go higher without INTC. It also has an effect on MSFT.] |
