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To: Doug Skrypek who wrote (141)	11/7/1997 10:21:00 AM
From: Paul Dieterich	Read Replies (1) \| Respond to of 582

Transition problems: AMD shortfall due to switch to .25.... Advanced Micro Will Miss Its Chip-Production Goal November 6, 1997 Dow Jones Newswires Advanced Micro Devices Inc., which has stumbled in its attempts to compete with chip giant Intel Corp., warned Thursday that it will fall short of its goal of producing two million K6 microprocessors in the fourth quarter and that it might not turn a profit for the period. Shares of AMD fell $2.25, or 9.3%, to $21.875 in New York Stock Exchange trading Thursday. AMD said production volumes should come closer to the two-million mark than to the total of one million chips produced in the third quarter, and added that it expects to ship its fastest 266-megahertz chips in volume in December. After disappointing investors in the third quarter, the company said it would post a profit in the fourth quarter if it were to reach its two-million-unit production goal and that the rest of its business remained steady. The company said Thursday that the shortfall is the result of efforts to increase production using advanced 0.25-micron circuit-width technology. AMD makes the K6 in both this circuit size and in the larger 0.35 micron width. Focusing resources on 0.25, which allows the company to produce higher-performing processors, led to a reduction in volume at the 0.35 level. AMD has had some success interesting computer makers in its K6 family of chips, which it sells for about 25% less than comparable chips from Intel. But the company has struggled to increase production volumes. Back in September, AMD stunned analysts and investors by reporting a loss for the third quarter. The possibility of producing fewer-than-expected chips in the fourth quarter is very serious, analysts have said, because chip makers can't afford to miss out on the Christmas season. And by the end of this year, the industry will be moving to a new generation of Intel chips that perform at significantly higher speeds. Analysts who have been bullish on AMD have said all along that the key to denting Intel's 80%-plus market share would be swiftly boosting K6. But the execution hasn't been good. Trying to put a positive spin on things, AMD chief executive W.J. Sanders III Thursday said that "we don't have a demand problem with the K6." Mr. Sanders said he sees the company "co-existing" with Intel, predicting that AMD will have enough capacity in place to produce 30% of Windows-compatible computer microprocessors in 2001. This expansion should attract software developers to the company's chip design, he said, although he added that "we recognize we have an uphill battle." AMD remains on track to offer improved graphics features in its processors in the coming year. The company reiterated that its K6 3D chip, which runs at 300 to 350 megahertz, is expected in the first half of 1998. The K6+3D is scheduled for the second half of the year, AMD said, with speeds of 350 to 400 megahertz. With respect to Advanced Micro's other lines of business, Mr. Sanders said flash-memory sales remain good, but prices are still under pressure. Bookings in the company's nonprocessor business are also good, he said. AMD said its share of the flash-memory business has risen to 23.6% of the market in 1997 from 20.5% in 1996.