AMD Surprises Wall Street,
Says It Might Break Even
By DEAN TAKAHASHI
Staff Reporter of THE WALL STREET JOURNAL
SUNNYVALE, Calif. -- Advanced Micro Devices Inc. surprised Wall Street by announcing at an analysts' meeting that it could break even in its fourth quarter, thanks to strong growth across all of its chip products.
Analysts had expected the company to post a loss of 37 cents a share, according to First Call/Thomson Financial. But the company now expects to report break-even fourth-quarter results -- barring any unforeseen disruptions, said its chairman and chief executive officer, W.J. Sanders III.
AMD Results Beat Estimates; Chip Maker Plans to Sell Unit (Oct. 7)
Mr. Sanders attributed the turnaround to a recovering microprocessor business, as well as better-than-expected sales of communications and flash memory chips. He and other AMD executives also noted that Intel Corp.'s fastest chips, 733 megahertz Pentium IIIs, were difficult to find in the market, even though Intel announced the products last month.
The news was a welcome contrast to AMD's disappointing performance throughout the year. Mr. Sanders attributed the turnaround in flash memory to a world-wide shortage of flash manufacturing capacity. But the improved microprocessor outlook, which is crucial to AMD's future, reversed a series of earlier setbacks this year in which AMD lost hard-won market share to Intel.
"AMD is getting a lot of traction against Intel from the low end to the high end," Dan Niles, an analyst at BancBoston Robertson Stephens, said. "This could put Intel in the worst position it's been in for several years. It's impossible to find Intel's fastest chips on the market now."
Stock Price Soars 24%
Trading was halted on AMD's stock on the New York Stock Exchange when the company broadcast the news Thursday morning. After trading resumed, the stock soared $5.375, or 24%, to close at $28 at 4 p.m.
Mr. Sanders said AMD plans to retake the title of the fastest PC microprocessor maker as it launches a 750-megahertz Athlon chip later this quarter, one quarter ahead of schedule. He said the company will launch 800-megahertz chips in the first quarter and one-gigahertz chips, or 1,000-megahertz chips, in the second half of 2000. Intel, however, has announced a similar schedule for its own deployment of faster chips.
The overall semiconductor industry is recovering after a protracted slowdown. That is helping AMD, which, besides microprocessors for computers, also makes flash memory chips. Flash chips are widely used in cellular phones and other hot consumer products such as high-tech toys and satellite-navigation devices used in boats, cars or while hiking. The company's communications division, which is up for sale, makes chips used in telephone switches and other communications gear.
"We believe we are gaining market share," said Mr. Sanders. "Six weeks into the quarter, our goal of shipping one million Athlons by the end of the year is increasingly realistic."
Earlier, AMD had anticipated it would be able to sell only 800,000 Athlons in the fourth quarter, in addition to 200,000 shipped in the third quarter. Now, Mr. Sanders believes AMD can make one million units in the fourth quarter. Mr. Sanders also said he was more certain that AMD would sell more microprocessors in the first quarter than it will in the fourth quarter. Overall, AMD expects to report record fourth-quarter revenue above $800 million, compared with $662 million in the third quarter and $788 million in the fourth quarter of 1998.
Where Intel Stands
Chuck Mulloy, a spokesman for Intel, declined to comment on AMD's competitive comments, and he said it "remains to be seen" whether AMD takes market share. He said Micronpc in Nampa, Idaho, has been shipping 733-megahertz Pentium III computers. And people familiar with the matter believe that the systems will become more plentiful next week, when Intel launches a new 820 chip set, a PC part that makes use of fast memory chips based on technology from Rambus Inc.
Mr. Niles at BancBoston Robertson Stephens said he changed his quarterly estimates from a 60-cent loss to a 10-cent loss "with possible upside" after hearing Mr. Sanders speak. He predicted AMD will regain lost customers, such as Gateway Inc.
Rob Herb, chief marketing officer for AMD, declined to comment other than to say major computer makers would embrace AMD's coming 750-megahertz chips.
In addition, Mr. Sanders said average selling prices for microprocessors are expected to be flat or up somewhat in the fourth quarter after a couple of quarters of falling average prices. Part of the reason is that AMD's older K6-2 chips are available at higher speeds of 533 megahertz, and as a result can sell for higher-than-expected prices against Intel's low-end Celeron chips. And prices for flash memory, which is sold out in the fourth quarter, are significantly higher now, compared with the third quarter, AMD said.
Mr. Sanders demonstrated a working version of a 900-megahertz microprocessor, one of the first chips to be made in the company's $1.8 billion factory in Dresden, Germany. That factory is expected to be in volume production in the second quarter, and AMD is searching for a partner to share the output of the factory. Meanwhile, Mr. Sanders said he anticipated much lower capital spending and research-and-development costs next year as the factory comes on line and its costs are reclassified as costs of goods sold.
Scott Randall, an analyst at Soundview Financial in Stamford, Conn., said that AMD was doing surprisingly well at cutting its costs. He said he expects AMD should be able to make 1.1 million Athlon microprocessors in the fourth quarter. Mr. Sanders said he hasn't yet found a chief operating officer to succeed Atiq Raza, who resigned in July, and instead was concentrating on improving the company's operations.
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