Cowen's Peck said he sees a "muted" reaction to AMD's results in Thursday's trading action
Advanced Micro Devices loss narrows
By Cecily Fraser, CBS MarketWatch
Last Update: 8:10 PM ET Oct 6, 1999
NewsWatch
SUNNYVALE, Calif. (CBS.MW) -- Advanced Micro Devices reported
a narrower-than-expected third-quarter loss Wednesday, as the troubled
chipmaker got a lift from sales of its Athlon processors and flash-memory
products.
Separately, the company (AMD: news, msgs) announced it's putting its
communications-products business units up for sale.
"If investors weren't aware before, they are certainly aware now, that the
future of their (AMD) success is certainly predicated on one product, and
that's Athlon," said Drew Peck, an analyst at SG Cowen Securities.
After the market closed, Intel's biggest competitor
in microprocessors said it lost $105 million, or 72
cents a share. Analysts surveyed by First Call were
expecting the company to post a loss of 97 cents a
share
Sales for the quarter rose 11 percent, hitting $662
million.
In the year-ago period, AMD eked out earnings of
$1 million, or 1 cent a share, on sales of $685
million.
The better-than-expected results follow a string of
disappointments for the Sunnyvale, Calif.-based
company. In AMD's second quarter, it warned that
cutthroat pricing by Intel (INTC: news, msgs) cut
into proceeds from its core line of computer chips.
That warning was AMD's fourth in two consecutive
quarters.
This time around, rising revenue helped shave $70
million from its operating losses amid sharply higher sales of flash-memory
chips. Demand for flash memory products drove sales up 28 percent from
the prior quarter.
"Flash memory demand is very strong and continues to outstrip our ability
to supply, even as we increase production capacity," the company said in
a statement.
The company said during a conference call that with robust sales of flash
products, total revenue could exceed $800 million next quarter.
Shares rose 13/16 to 19 7/16 ahead of the news.
Peck said he sees a "muted" reaction to AMD's results in Thursday's
trading action.
"The question is, 'how do investors fell about the company basically
focusing even more on the company focusing on its microprocessor
business, which has had a checkered history,'" he said.
Athlon marathon
More of AMD's
revenue is moving
away from its
low-margin K6 core
line of chips, in favor
of its next-generation
Athlon line of
processors, which
have a higher profit
margin.
Gross margin, or the amount of money earned per dollar of revenue, was
28 percent, up 5 points from the second quarter.
As for the fourth quarter, AMD said gross margin will depend heavily on
volume, mix and average selling price.
"We are not planning on further gains in revenue from the K6 family, so
our revenue growth in microprocessors must come from ramping sales of
Athlon processors," the company told analysts during a conference call.
The company added that its "highly confident" it can produce more than 1
million Athlon processors in the fourth quarter.
Earlier in the week, AMD rolled out its speedier 700 megahertz
processor in the newest addition to its Athlon family. The processor
surpasses the highest-performing Intel (INTC: news, msgs) Pentium III
processor, a 600MHz chip. Both IBM (IBM: news, msgs) and Compaq
Computer (CPQ: news, msgs) are expected to use the Athlon chip in
computers. The 700 MHZ chip is priced at $849.
AMD on Tuesday also unveiled plans for a new 64-bit chip, known as
the SledgeHammer, that will compete with Intel's Itanium chip.
But Wall Street analysts are still wanting more signs that the company can
deliver what it has promised.
"They have to establish a brand name for the Athlon," said ABN Amro
analyst David Wu. "The real key to AMD is really to get the K7 Athlon
launch correctly and (make) some money. They haven't had a habit of
making money."
Peck said that with the increased focus on the microprocessor business,
the company will also need to work on sustaining higher average selling
prices.
"That's a big gamble, because Intel has shown no inclination to allow
AMD into the high end of the processor business and anytime AMD
starts to make some headway there, Intel cuts prices," he said.
Aftershocks
AMD acknowledged that limited Athlon motherboard availability during
the third quarter was exacerbated by the Sept. 21 Taiwan earthquake,
shutting off motherboard shipments in the final week of the quarter.
Jerry Sanders, chief executive officer, said AMD is monitoring the supply
situation daily and that the company is committed to optimizing shippable
output.
In the face of the supply chain uncertainty due to the Taiwan earthquake,
the goal of $800 million in revenue is tough, he added.
For sale
AMD's communications products division, which is going on the auction
block, provides integrated circuits for telecommunications applications,
and the network products division, which supplies integrated circuits for
data communications and computer connectivity.
"Clearly they are facing a continuing cash squeeze in order to feed their
cash requirements and they are selling off pieces of the company now,"
said SG Cowen's Peck.
In essence, narrowing the product line down to two categories,
microprocessors and flash memory, he added.
Together, these product groups employ approximately 400 people and
produced revenue of $70 million in the just-completed quarter. AMD said
it plans to complete the sale in the first half of 2000. |
