Price War Hurts AMD
Despite continued strong sales of its PC chips, Advanced Micro Devices Inc. on Wednesday reported that it lost $186.9 million in the third quarter, blaming an ongoing price war with Intel Corp. for pummeling processor profits.
Officials at the worlds second largest PC chipmaker argued that while the companys earnings were disappointing, AMDs fundamental businesses remained strong, noting that it sold 7.7 million Athlon and Duron processors during the quarter, matching last quarters all-time chip sales record.
In addition, the Sunnyvale, Calif., company said it maintained about a 22 percent share of the world PC processor market, only slightly below its all-time highest level, despite increasingly intense price competition from Intel.
"In PC processors, we believe that, at most, we lost seven-tenths of a percent" market share during the quarter, AMD Chairman Jerry Sanders said in a conference call with analysts.
Sanders also argued that Intels aggressive price cuts in recent months were hurting not only AMD but Intel itself, as well. The giant chipmaker this week posted a 96 percent drop in income from a year earlier.
"Its pretty clear that their desire to cut off our air supply is not painless to them," Sanders said.
Excluding one-time restructuring charges of $89.9 million, AMD posted a lost $97 million, or 28 cents per share for the quarter ended Sept. 30. That matched recently lowered Wall Street expectations, according to Thompson Financial/First Call. Prior to an AMD warning last week, analysts had been forecasting a loss of 12 cents a share.
AMDs recent earnings stand in sharp contrast to the companys fortunes a year ago, when it reported net income of $408.6 million, or $1.18 a share. Revenue also fell sharply to $765.9 million this year from $1.21 billion for the third quarter of 2000.
Looking ahead, Sanders predicted that while AMD will sell a record number of processors noting hed be "extremely disappointed" if it doesnt top 8 million units the company still expects to post a loss for the fourth quarter. AMDs flash memory business also continued to suffer as sales of products that use such components, including handheld computers and cell phones, continue to remain weak. Overall, sales for AMDs Memory Group totaled $210 million, a drop of 50 percent from a year ago.
While AMDs fortunes remain heavily dependent on PC sales for now, the chipmaker has high hopes for breaking into the more lucrative workstation and server market with the introduction next year of its first 64-bit processor, the Hammer.
In response to analysts question about what the companys top three initiatives for next year are, Sanders responded, "Hammer, Hammer, Hammer."
"Weve got an extraordinary opportunity to break into markets weve never been in," he said.
While AMD has garnered a significant share of the consumer PC market, the company has yet to secure a place in corporate systems offered by the largest computer makers.
AMD is counting on its Hammer processor to break down that barrier once and for all, by offering computer makers a competitive, low-cost 64-bit processor that, unlike any other competitors products, will be fully compatible with existing 32-bit applications.
That flexibility, AMD contends, will make the processor particularly attractive since businesses using the chip will be able to not only implement new applications, but still run their older 32-bit based ones as well.