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Politics : Formerly About Advanced Micro Devices -- Ignore unavailable to you. Want to Upgrade?

To: Paul Engel who wrote (37142)	9/18/1998 1:07:00 PM
From: Maverick	Read Replies (1) \| Respond to of 1570760

AMD: Riding the Cheap PC Wave In its "David v. Goliath" battle against Intel (Nasdaq:INTC - news) , victories have been scarce for Advanced Micro Devices (NYSE:AMD - news) . Even the occasional wins have often turned out to be little more than silver clouds with a dark lining. For example, when it landed orders from several major PC makers for its K6 microprocessor over the past year, AMD struggled with production problems that resulted in massive operating losses and, at times, inability to keep up with demand. But the beleagured stock got a boost Thursday from Merrill Lynch's Thomas Kurlak when the widely-followed PC industry analyst raised his earnings estimates for AMD because of favorable sales trends for the K6. The news lifted AMD one point to $17.75, not a huge move but still noteworthy on a day when the Dow lost over 200. Merrill's Kurlak raised his 1999 earnings forecast for AMD to $0.70 per share from break even. He cited strong sales of the second generation K6, and noted that renewed demand was fueling higher average prices on microprocessors. This at a time when Intel has stepped up the frequency of its price cuts to a near-monthly cycle, the latest of which came Monday. Kurlak also said AMD is gaining ground on Intel, with 30% sequential unit growth in the third quarter compared to 10% for Intel. Demand for AMD's relatively less-expensive K6 microprocessor has been fueled by the explosive growth in sub-$1000 PCs. A survey by Ziff-Davis Market Intelligence released Thursday showed that 42% of PC sales in the second quarter were sub-$1000, a dramatic gain from what was considered a respectable 13% in the first quarter. Little more than a year ago many industry experts scoffed at the notion of sub-$1000 machines making a meaningful dent in the market. Even Intel appeared to be caught by surprise, allowing AMD and National Semiconductor's Cyrix (NYSE:NSM - news) to establish themselves at the low end. Not only is AMD benefitting from the low-end explosion, but some say it is now well positioned to gain ground in the high-end with the addition of new 3-D features in its chips. AMD began shipping K6-2 chips with 3DNow! technology in late-August. Intel isn't expected to add comparable 3-D technology until next year. Intel is hardly standing still, though. The chip titan is aiming low with Celeron, its first Pentium II line of microprocessors designed especially for low-end computers. So the good news is that AMD got the jump on Intel in this hot new segment with deals to supply K6 chips to IBM (NYSE:IBM - news) , Hewlett-Packard (NYSE:HWP - news) , Digital Equipment, Toshiba, and Compaq (NYSE:CPQ - news) . The bad news is that Intel won't concede defeat. Apart from AMD's battle with Intel, the company has struggled with production problems that are hurting, actually precluding, profitability. AMD has run into these manufacturing problems before, and its shift to 0.25 micron production technology this year added a whole new wrinkle. A co-production pact with IBM announced in March should help, but it may not have a significant impact on AMD's business until the next generation of chips. According to AMD, the deal will "somewhat augment" capacity for K6 production, but volume shipments aren't expected from IBM until the end of 1998. Without the IBM deal, AMD might have faced an all-or-nothing proposition -- either fix the K6 production woes quickly or get out of the microprocessor business all together. Now they should at least be in the game for a few more years. AMD also has more than just the microprocessor business to depend on. In fact, even with the jump in K6 sales last quarter, computation products accounted for just 42% of revenues. The rest came from memory chips, communications (network and wireless chips) and programmable logic devices, but these areas are languishing currently and it is the computation products that are expected to drive AMD back into profitability by the fourth quarter. fnews.yahoo.com