Friday February 5 12:26 AM ET
Advanced Micro Sees Possible Q1 Operating Loss
SUNNYVALE, Calif. (Reuters) - Chip maker Advanced Micro Devices Inc. (NYSE:AMD - news) said
Thursday that it could incur an operating loss in its current first quarter, in light of accelerated chip price cuts by
its main rival Intel Corp. (Nasdaq:INTC - news)
The news confirmed what many analysts had begun to speculate late Wednesday and early Thursday, after
AMD cancelled two upcoming presentations at technology investment conferences, fueling a sharp drop in its
shares in two days.
Earlier Thursday, some analysts had already begun cutting 1999 earnings estimates, or warned that AMD might
see an earnings shortfall, due to an increasingly tough price war with Intel.
''The competition is big, mean and great,'' said Scott Allen, a spokesman for Sunnyvale, Calif.-based AMD.
But he added that AMD plans to further enrich its product mix going forward with chips like the K6-3 and
others.
''We believe we are looking at a one quarter event,'' he said.
Allen said that AMD's K6-3 chip, which will compete directly with Intel's upcoming Pentium III chip, is on
schedule and should be in systems on retail shelves at the end of the first quarter or the beginning of the second
quarter.
Intel, which was a late-comer to the low-end PC market, has recently come on strong with its Celeron processor
designed for PCs costing $1,200 and below. In a move to gain back lost market share in that segment of the
market, Intel has moved up new product launches and price cuts in the Celeron family.
In a statement issued before the stock market closed, AMD said that, based on a reassessment of current
business conditions, it could incur an operating loss in the quarter.
AMD said that, with Intel's recent acceleration of its price cuts and the expectations for its new Pentium III
products, it is reassessing its competitive response.
''The likely outcome is that, in spite of the planned richer mix, we will be unable to increase our microprocessor
average selling prices in the current quarter,'' W.J. (Jerry) Sanders, chairman and chief executive, said in a
statement.
AMD shares tumbled earlier before they were halted from trading on the New York Stock Exchange, pending
news. AMD shares fell $2.0625 to $18.875 Thursday and were the second most active stock on the NYSE.
Analysts had been forecasting that AMD would report earnings of 13 cents per share for the first quarter, versus
a loss of 39 cents in the year-ago quarter, according to the consensus provided by First Call.
AMD also said that, while it has completed the design enhancements to increase the volume production of its
K6-2 processor with advanced multimedia functions, it will not realize the benefits of the production change until
the second half of the first quarter.
The company also said its inability to increase average selling prices in the current quarter will put more pressure
on its gross profit margins.
Some analysts have said the average selling price for AMD's K62 processor is declining about 30 percent in the
current March quarter, to $60 from about $88 in the December quarter, and will fall to $50 by the summer.
''I don't think the K62 and the K63 will materially contribute to the bottom line because ASPs (average selling
prices) are heading down a cliff,'' said Ashok Kumar, an analyst at Piper Jaffray, adding that, in the December
quarter, the microprocessor division was 67 percent of AMD's total revenues and almost all of its profits.
''Now the microprocessor division is not contributing to profits at all,'' Kumar said. ''Clearly they will have to do
some soul-searching and cut divisions that do not show any signs of a turnaround.'' |
