AMD soars,INTC suffers from missteps
NEWS: July 24, 2000
A Tale of Two MPU Companies
AMD soars, Intel suffers from missteps
By Jayant Mathew
The flamboyant Jerry Sanders is going for the jugular. The chairman and chief executive officer of Advanced Micro Devices Inc. (AMD) now believes his company is "reasonably uncrushable" in its cutthroat battle against chip giant Intel Corp.
He has a point. Unlike last year, AMD is not burning cash. Instead, the upstart chipmaker had another blowout quarter and seems positioned to challenge the Intel juggernaut. [Intel delays Itanium roll out. See story.]
Buoyed by unusual demand for microprocessors and flash memory, AMD stole the limelight from Intel as it nearly doubled last year's revenues in the second quarter, with record sales of $1.17 billion. The company earned $207 million, or $1.21 a share in the quarter, easily beating analysts' estimates by 7 cents.
Intel also fared well, earning $3.1 billion, or 45 cents per share, up from $1.8 billion, or 25 cents per share, a year ago. The company reported sales of $8.3 billion, up 23 percent from last year.
However, Intel's earnings included a whopping $2.3 billion from the sale of stock from its investment portfolio and a charge of about $200 million associated with the recall of defective motherboards. Although Intel exceeded analysts' estimates, the company came under criticism by some observers who felt its earnings were too dependent on the sale of one-time investments.
AMD didn't need to massage its numbers. The chipmaker made the most of Intel's missteps by selling a record 1.8 million high-end Athlons and low-end Duron chips, up 52 percent from the first quarter. The company reported that it expects to double shipments of these seventh-generation microprocessors to 3.6 million units in the third quarter and again to 7.2 million in the fourth quarter. AMD even sold out its old, low-priced K6 chips.
The company also got a boost from flash memory, which grew by more than 10 percent from last year and accounted for 30 percent of revenues. AMD said demand continues to exceed supply, and it expects strong flash sales for the remainder of the year. This should make up for lost revenues from the sale of its communication products division.
AMD is diversifying its flash memory portfolio and is adding capacity to tap a market that is growing at a rate of about 197 percent. Analysts are conservative about AMD's flash outlook because they expect the market to slow as supply catches up within the next few quarters.
AMD, however, is sitting pretty because it appears to have made a flawless transition to its revved-up Athlons with on-chip memory. Analysts believe that AMD's Dresden plant also is ramping up without any known glitches, a rarity when a new facility goes operational. The company also announced a 2-for-1 stock split effective Aug. 22.
Subdued Mood at Intel
The mood is somewhat more somber at Intel. The company's strategy and execution over the past year were anything but flawless.
First, Intel underestimated demand for chips, leading to an unprecedented shortage. Second, it was caught up in an expensive transition to an advanced manufacturing process, which inhibited it from ramping up. Finally, it shipped faulty motherboards to customers that led to a product recall. To make matters worse, it has delayed several product introductions, most notably the Timna, its integrated microprocessor, and Itanium, its 64-bit chip.
In spite of this and AMD's recent success, Intel has done reasonably well, coming in line with estimates even without the investment gain and maintaining its market share. Intel said it expects strong demand to continue in the coming quarters and there are indications that the company's capacity problems are easing.
"(Intel has) the best of all possible worlds as they have barely enough product to meet demand and there is no extra supply to help soften any market prices," said Dan Scovel, semiconductor analyst at Needham & Co.
Intel has shifted focus to accommodate the higher-margin corporate PC market rather than to meet consumer market requirements. Analysts believe that availability of Pentium IIIs in the second quarter was the reason for Intel's strong results.
The chipmaker's performance also defied those industry observers who were predicting the demise of the PC market. And if this quarter is a barometer for the rest of the year, Intel and AMD will be posting record revenues with average selling prices not expected to fall until the fourth quarter. This is good news for both companies, but better for AMD, which typically takes the brunt of a price war.
Gigahertz Wars: Episode II
The chipmakers are getting set to re-ignite the gigahertz race. Both the companies plan to release faster versions of Athlons and Pentiums in the next couple of months, followed by a slew of new microprocessors.
"Their market shares are stable," said Linley Gwennap, principal analyst at The Linley Group. "For AMD, all that is happening is Athlons are taking over where K6 is dropping off." Intel has not lost significant market share because of AMD, but analysts believe that if Intel continues to be lackadaisical, then AMD will benefit as it has done this quarter.
"All things considered, Intel has not done poorly at all," Scovel said.
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