AMD Posts Big Loss, President Resigns
By Duncan Martell
dailynews.yahoo.com
SAN FRANCISCO (Reuters) - Advanced Micro Devices Inc. (NYSE:AMD - news), battered by a computer-chip price war with Intel Corp. (Nasdaq:INTC - news), Wednesday posted an expected loss, then stunned Wall Street with news its president was resigning.
While investors were braced for the massive loss, the sudden resignation of President S. Atiq Raza, who was widely seen as heir apparent to Chairman W.J. Sanders, was a shock.
Atiq is leaving AMD at a critical time as it is poised to gear up a next-generation chip. Analysts have said the chip is AMD's last and best hope for competing against Intel Corp., which AMD has called an ''800-pound gorilla.''
"Atiq was a key person in bringing back credibility for the company and now it's same-old same-old,'' said Ashok Kumar, analyst at US Bancorp Piper Jaffray. ''This is unfortunate. Clearly the company was positioning itself for a turnaround and without the captain at the helm, it's very difficult."
Raza, who also is AMD's chief operating officer and chief technical officer, would only say that he was resigning for personal reasons.
''I'm looking at all possibilities for myself,'' Raza said in an interview. ''My departure is personal, rather than anything to do with AMD's prospects.''
Sanders, who is chairman and chief executive, will temporarily take over Raza's posts. Raza, who was just appointed president in April, also resigned from the board.
Raza is credited both inside the company and out for successfully overseeing the introduction of the K6 chip -- AMD's first big winner against Intel in years -- as well as for supervising the design of its next-generation Athlon chip. The chip, previously code-named the K7, is aimed at the high-end PC market, workstations and powerful servers.
''On paper, it's a very nice chip,'' said Linley Gwennap, editor of the Microprocessor Report. ''The challenge at this point is getting it into production and moving forward. It looks to me they really are betting the company on the K7.''
Sunnyvale, Calif.-based Advanced Micro, which warned last month it would post a big loss, reported a loss of $162 million, or $1.10 per share, excluding one-time gains in the second quarter. Last year, Advanced Micro posted a loss of $64.6 million, or 45 cents a share. Wall Street analysts had expected the company to post a loss of $1.26 a share.
Including one-time items, AMD posted a net profit of $79.9 million, or 53 cents a share, for the latest quarter. That included an after-tax gain of $259 million from the sale of Vantis, the company's programmable logic subsidiary, and reflected an operating loss of $173 million, AMD said. Sales rose to $595 million from $526.5 million,
While AMD has finally conquered production problems that plagued its K6 family of chips and hurt previous results, the company said its average selling prices tumbled amid bruising competition from Intel.
Last year, AMD gained market share at the low end of the market and finished up the fourth quarter with 14 percent market share, Gwennap said. But by the end of the second quarter, that had dwindled to 12 percent, compared with 82 percent for Intel, which gained share in the period.
''I think there's this big red light in the CEO's office (at Intel) that starts flashing whenever their market share drops below 80 percent,'' Gwennap said.
AMD said average selling prices for the K6 processors fell to $67 from $78 in the first quarter of 1999, and AMD reported sales of 3.7 million of its K6 processors, down from 4.3 million units in the first quarter.
''In the face of Intel's intensifying aggression in the consumer sector of the PC market, where our AMD-K6-2 processor family ... has achieved substantial market share in both desktop and portable PCs, further gains in unit market share or revenue growth are unlikely,'' Sanders said in a statement.
Sanders, who referred to Intel on the conference call as ''the Intel monopoly'' and to its ''extortionate pricing,'' also said AMD would be able to make more than 1 million Athlon chips by the fourth quarter.
Analysts said, however, that AMD must convince top PC makers such as Compaq Computer Corp. (NYSE:CPQ - news), Dell Computer Corp. (Nasdaq:DELL - news) and Hewlett-Packard Co. (NYSE:HWP - news) to use the Athlon in the computers they build. Otherwise it won't matter much.
"You'd like for Intel to have some competition, otherwise they just have a license to print money,'' Kumar said. ''If AMD doesn't execute on the K7, it's sayonara."
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