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Technology Stocks : Advanced Micro Devices - Moderated (AMD) -- Ignore unavailable to you. Want to Upgrade?

To: Joe NYC who wrote (57355)	10/5/2001 3:25:01 PM
From: reynoso	Read Replies (3) \| Respond to of 275872

Wasn't Dan Scovel a strong AMD supporter? His comments are very unsettling. Friday October 5, 2:52 pm Eastern Time Forbes.com AMD Wounded By Price War By Arik Hesseldahl Though it seemed primed for a limited rebound in the coming year prior to Sept. 11, the future for the semiconductors industry isn't looking good. And for chipmaker Advanced Micro Devices , the timing couldn't have been worse. ADVERTISEMENT AMD , rival to world's largest chipmaker Intel in two key market segments, said sales in the current quarter will be significantly lower than expected. The company said sales are on track to come in at $766 million, 22% lower than the previous quarter, and a far cry from the billion-dollar quarters it had reported throughout 2000 and into the early part of this year. Gone too are the profits it had become accustomed to. AMD's earnings per share have dropped to 5 cents last quarter from a peak of $1.24 in 2000's third quarter. It now says to expect a pro forma loss of between $90 million and $110 million, or between 26 cents and 31 cents per share, not including restructuring charges stemming from its recently announced layoffs. "We don't expect AMD to make money now for six quarters," says Dan Scovel, chip analyst at Needham and Co. in New York. While it can cast a lot of blame on the general downturn in the economy and the chip industry, it's making no bones about who it thinks is the culprit: Intel. The price war between them is getting fierce. Of course, that's nothing new. What's new is the fact that AMD no longer enjoys the technical advantage its chips, until recently, held over chips made by Intel. Those who follow which company's chips perform best in the real world, now tend to say that Intel's latest Pentium 4 chips have a performance edge. AMD will try to narrow that gap with new chips as early as next week, though yet another new chip from Intel won't be far behind. But it's the computer-buying public whose opinion really matters. Many people compare clock speeds and will see that AMD's fastest Athlon, appears to run 600 megahertz slower than Intel's top-of-the-line Pentium 4, at 2 GHz. The reality has more to do with how much work is accomplished with each clock cycle, which is how AMD's chips tend to remain competitive. That's hard to explain in a short marketing message. But AMD's apparently going to try. The company is close to announcing a new product-branding strategy that will focus on turning attention away from the "megahertz myth" in favor of touting how much work a chip can do, which is by more than just megahertz alone. AMD has already dropped plenty of hints regarding its plans, having circulated a white paper on the subject in August. And a casual look at the section of its Web site promoting the Athlon processor barely even mentions the clock speed of its top-performing chip, when it was typically the first fact mentioned in marketing materials. Now that it no longer has the megahertz advantage that it enjoyed, it's going to have to fight an uphill public relations battle. Beyond that, AMD also faces a question about its long-term ability to fight Intel on the technology front. In the first half of this year, AMD spent nearly $329 million on research and development. As it restructures and cuts costs--it said last month it would lay off 2,300 employees--its research and development spending will likely take a hit. AMD says the job cuts and the closure of two older chip factories in Austin will save the company $125 million a year when implemented. Sales volume is fine. AMD sold 7.7 million chips last quarter and will probably sell about as many this quarter. The problem is the price. Intel is expected to cut prices on its top-performing chips this month in preparation for even faster chips to follow. AMD has no choice but to respond in kind. That means less cash coming in. "It's going to be very difficult for Intel to cripple AMD," Scovel says. "But if Intel can keep AMD under the financial gun so that it can't invest in its next generation, then it's in trouble." Related Links at Forbes.com Rules For Shorting Stock Staying In Place News Scan: Oct. 5, 2001 Go to www.forbes.com to see all of our latest stories, or Subscribe to Forbes Magazine