Flash Brightens AMDs Dragging Second Quarter

Updated: CEO Hector Ruiz says the company is "sustaining our promise of maintaining profitability," and that its AMD64 products are on the rise.

Advanced Micro Devices Inc. on Wednesday reported flat revenues and slightly lower profits for the second quarter of 2004, a performance mirroring that of rival Intel Corp.

AMD, of Sunnyvale, Calif., reported net income of $32 million on revenue of $1.26 billion. Net income slipped 28 percent from the previous quarter. Revenue increased 2 percent from the previous quarter and increased 96 percent when compared with the same period a year ago, when the company reported a loss of $140 million.

AMDs performance tracked that of Intel, which on Tuesday reported flat revenues and net income, but substantial improvements in both categories compared with a year ago. Like Intel, AMD performed strongly in flash memory, reporting slightly lower sequential revenues in its CPU division.

"The second quarter continued a very important trend for AMD: sustaining our promise of maintaining profitability," said Hector Ruiz, AMDs president and CEO.

/zimages/1/28571.gifRead more here about AMDs gains in flash memory business.

As in the January quarter, AMDs revenue derived mostly from flash memory through its Spansion LLC venture with Fujitsu Ltd. AMDs memory group reported revenues of $673 million compared with the $553 million reported by the Computational Products Group, which houses AMDs microprocessors.

AMDs CPG revenues declined 3 percent from the previous quarter, while AMDs flash business grew 7 percent. But both units showed dramatic improvement compared with a year ago, when AMD began to emerge from the dot-com slump.

"We achieved record Spansion flash-memory sales in the second quarter and more than tripled operating income from $14 million to $45 million," Robert Rivet, AMDs chief financial officer, said in a statement. "Spansion maintained clear leadership in the NOR Flash memory market. In addition, accelerating AMD Opteron and Mobile AMD Athlon64 processor sales contributed to a double-digit operating margin for our microprocessor business."

The transition to 110-nm process technology for both floating gate and MirrorBit flash-memory technologies is on schedule, AMD said. Spansion is on track to double flash memory bit capacity in 2004, the company said.

AMD began ramping its Athlon64 notebook business during the quarter, the company said, and saw increased demand for its Athlon64 64-bit chips. Further performance improvements are expected as AMD converts its Fab 30 in Germany from 130-nanometers to 90-nm, a process that began in the second quarter.

But the company saw average selling prices (ASPs) for its CPUs decline "modestly," Ruiz said, a result of the companys aging 32-bit Athlon XP products. Sales of the companys AMD64 chips rose 50 percent from the previous quarter, according to Henri Richard, AMDs executive vice president of sales and marketing, and AMDs average CPU selling price is also expected to rise modestly during the third quarter. By the end of 2004, half of AMDs processor revenue will derive from sales of AMD64 products, Ruiz predicted.

During the fourth quarter, Richard said, AMD will introduce a 25-watt Athlon64 notebook chip specifically designed for thin and light notebooks, a market AMD has struggled to enter. Next year, the company will begin to transition into its dual-core lineup, whose first server products will begin generating revenue in mid-2005. Dual-core PC processors will generate revenue in early 2006, he said.

Revenue shipments of 90-nm products will begin in the third quarter, the company said. AMD will transition the bulk of its entire CPU product line in mid-2005 to the new process, with the 90-nm conversion finished by the end of the year, Ruiz said. AMDs new 300-mm wafer fab, Fab 36, is still on track to begin production in 2006..

The company predicted that third-quarter sales in both its flash and CPU businesses will increase during the third quarter, and sales should "increase modestly" during the second half of the year.

"What we see are modest signals from the IT community that they are going to increase spending, but they remain extremely focused on the value question," Ruiz said.

Editors Note: This story was updated to include information and comments from a conference call with AMD officials.

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