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Technology Stocks : Intel Corporation (INTC) -- Ignore unavailable to you. Want to Upgrade?

To: gnuman who wrote (75871)	3/9/1999 11:15:00 AM
From: IVAN1	Read Replies (1) \| Respond to of 186894

AMD's Problems Mar 09, 1999 More Grim News from AMD By Marcy Burstiner Staff Reporter SAN FRANCISCO -- Lots of bad news for Advanced Micro Devices ( (NYSE:AMD - news) ): The company faces a loss this quarter, plans to lay off 300 people and expects to produce fewer chips than it previously expected. So is there a silver lining to all this grey? According to AMD spokesman Scott Allen, the good news is that AMD's problems are behind it, and that business will pick up. Or, maybe it's more recycled tinsel than silver lining. "I've heard this story before," says SG Cowen & Co. chip analyst Drew Peck. On Jan. 13, AMD admitted manufacturing problems in the fourth quarter so severe that only 34% of the chips coming off line carried speeds above 350 MHz (the goal being as many chips as possible at 400MHz). At that time, the upside was news from CEO W.J. "Jerry" Sanders that AMD produced "a robust" 5.5 million chips in the fourth quarter. The manufacturing problems were over, Sanders said, and the yield would improve significantly this quarter. "We've got that problem behind us," Sanders said at the time. Now, AMD says it did not even produce 5 million chips in the fourth quarter. That may signal that the manufacturing problems are so severe the company is tossing chips in the garbage -- that the speeds the chips are yielding are so low nobody wants them. AMD spokesman Scott Allen will not admit this, but he won't deny it either. Allen says the company was hit with a "double whammy" this quarter. Compounding the manufacturing problems were severe price cuts from Intel that came months earlier than AMD had anticipated. As for proof that the worst is behind AMD, Allen says, "We have seen the silicon coming out of the [manufacturing plant] for March," he says. "We know we are back on track in frequency output." Allen says that Sanders' January comments only pointed out that the company had the solution to the problem. This doesn't comfort Peck, who has a hold rating on the company. He asks: If AMD miscalculated how soon it could fix the problem, who's to say it hasn't miscalculated output now? "It puts a hole in their credibility," he says. "But I guess it's better than not having seen the silicon." (Cowan has no underwriting relationship AMD.) In some ways, AMD seems to be winning battles against Intel ( (Nasdaq:INTC - news) ): AMD has taken a lead share away from Intel in the U.S. retail market for personal computer chips. The company has announced penetration into Gateway ( (NYSE:GTW - news) ) PCs. And just today it announced its chips would be inside three new Compaq ( (NYSE:CPQ - news) ) laptop computers. None of that matters if the company can't make money -- and can't keep making money, analysts say. Back in October, it looked as if AMD was heading toward the black when it squeaked out a one-cent-per-share profit for the third quarter, and then a 15-cents-a-share profit for the fourth quarter. But now the company has announced that not only will it end the quarter at a loss, but the loss will be "significant." Interestingly, AMD waited until a scheduled appearance at the Morgan Stanley Dean Witter semiconductor conference in Laguna Nigel, Calif., Monday to release this news. Since February, it has cancelled three scheduled appearances at conferences sponsored by Nationsbanc Montgomery Securities, BancBoston Robertson Stephens and Goldman Sachs. The Morgan conference was the first of the four to be closed to the press. Allen says that was entirely coincidental. All this leaves the bears shaking their heads. "Intel is going to crush AMD," says Gus Richard, an analyst at Emerging Growth Management, a fund that is neither long nor short AMD or Intel. "If you want 100 million units, are you going to go to AMD? I don't think so. They are pathetic." What might convince shareholders to buy the stock? Details, says Peck. But details may take some time to emerge. Allen says the next time the company is going to hold a conference call to discuss financials will be when it releases its first-quarter numbers on April 6.