(UPDATE) Chip Maker Advanced Micro Posts Surprise Profit, Cites K6 Sales
Dow Jones Online News, Tuesday, October 06, 1998 at 23:32
By Dean Takahashi, Staff Reporter of The Wall Street Journal
Advanced Micro Devices Inc. posted a surprise profit for its third
quarter, as its K6 family of microprocessors began grabbing more market
share from Intel Corp.
AMD, a Sunnyvale, Calif., semiconductor maker, reported a profit for
its quarter ended Sept. 27 of $1 million, or one cent a diluted share,
compared with a loss of $31.7 million, or 22 cents a share, a year
earlier. Revenue for the quarter was $685.9 million, up 15% from $596.6
million a year earlier.
AMD's profit was well above analysts' estimate of an 11-cent-a-share
loss, as tallied by First Call Corp. AMD's turnaround was particularly
sharp compared with its second quarter, when it posted a loss of $64.6
million, or 45 cents a share.
"A few more quarters of this and people will start to become
believers," said Nathan Brookwood, an analyst at market researcher
Insight 64 in Saratoga, Calif. AMD announced the results after markets
closed Tuesday. Earlier, AMD shares rose 8.2%, or $1.50, to $19.875 in
New York Stock Exchange composite trading. The stock rose to $20.50 in
after-hours trading, according to Instinet.
"Anecdotal evidence suggests the worst is behind us," said W.J.
"Jerry" Sanders III, chief executive officer of AMD. "We're establishing
credibility by making what we said we were going to make."
The upside surprise illustrates the profit-generating power of some
attractive chip products. AMD said sales of its K6 and K6-2
microprocessors topped 3.8 million units in the quarter, compared with
2.7 million in the second quarter. Mr. Sanders said he was confident
that AMD can ship 4.5 million microprocessors in the fourth quarter, and
he predicts AMD will sell 20 million to 25 million microprocessors, or
at least 19% of the total market, in 1999.
Market researcher PC Data said AMD had grabbed 54% of the U.S. market
for chips used in sub-$1,000 computers in August, the most recent period
available. Those gains in the low end market caused its microprocessor
revenue to more than double, to $381 million from $178 million in the
third quarter a year earlier, the company said.
But AMD's other businesses were hamstrung by the yearlong
semiconductor recession. AMD's programmable logic chips were down 19%
from a year ago, communications chips were down 30% and flash-memory
chips were down 28%. Mr. Sanders said that bookings indicate flat
revenue going forward in those businesses.
Last month, AMD launched a K6-2 microprocessor that operates at a
speed of 350 megahertz, close to Intel's mainstay 400-megahertz
microprocessor. That helped AMD command higher prices. Its average
selling price in the third quarter was $100, compared with an estimated
$81 in the second quarter, according to Mr. Brookwood.
But in the coming quarters, analysts believe that AMD's problem could
shift from a concern about making enough chips to worries about
oversupply, especially as Intel launches more chips targeted at the low
end of the market.
To date, AMD's success has been with retail consumers. But its
factory capacity has grown so much that it will have to break into other
Intel strongholds as well. The company is focusing on increasing sales
to makers of portable computers. It may have a harder time with makers
of business-desktop computers, a sector in which Intel's brand name
attracts strong customer loyalty, said Ashok Kumar, an analyst at Piper
Jaffray Inc. in Minneapolis. Meanwhile, Intel is shifting its focus to
higher-value server-workstation chips, which AMD cannot match.
Mr. Sanders said AMD can parry expected accross-the-board price cuts
from Intel with new products, including 400-megahertz and 450-megahertz
K6-2 microprocessors, as well as a microprocessor with integrated
cache-memory, code-named Sharktooth.
Next week, AMD will unveil details of its most important gamble to
date: a new microprocessor, code-named K7. The chip is a major attempt
to design an Intel-compatible microprocessor that doesn't plug into
Intel's existing circuitry on a motherboard, the main system board in a
computer. As a result, AMD must help its partners engineer additional
components beyond the microprocessor, such as motherboards themselves,
as well as data highways and chip sets.
AMD plans to demonstrate a working unit at the Comdex computer show
in November and to launch the K7 in the first half of next year, about
the same time that Intel plans to release microprocessors with its
second-generation multimedia processing technology, called Katmai New
Instructions, which Intel will describe in greater detail next week at
the annual Microprocessor Forum in San Jose, Calif. |
