Server Sales Drive Profits at AMD

Updated: Advanced Micro Devices reports that its profits climbed on increased 64-bit sales into the server market, while revealing that it will phase out its 32-bit AthlonXP processor earlier than some had expec

Advanced Micro Devices Inc. on Thursday reported lower revenues than in the previous quarter, although profits climbed on increased 64-bit sales into the server market. The company also said it would phase out its 32-bit AthlonXP processor earlier than some analysts expected.

AMD, based in Sunnyvale, Calif., reported net income of $44 million on sales of $1.2 billion for the companys third quarter, ended Sept. 26. A year ago, AMD reported a net loss of $31 million; income increased 38 percent from the second quarter.

Meanwhile, revenue climbed 30 percent from the same period a year ago, but dropped just less than 2 percent from the second quarter of 2004.

"The third quarter was another solid quarter, despite challenging dynamics in the memory business," said Hector Ruiz, the companys chief executive, president and chairman.

Makers of cellular handsets trimmed production during the third quarter, apparently worried about economic conditions. As a result, flash memory sales into the wireless handset market declined significantly, resulting in lower ASPs (average selling prices) for flash memory, the company said.

By contrast, AMD executives said the companys AMD64 products—the Opteron server processor and the AMD64 desktop chip—experienced double-digit gains in both units and ASPs. All told, AMD64 products represented a third of AMDs total sales.

That percentage of sales will likely increase, however, as AMD moves to phase out the AthlonXP, the 32-bit chip that was the instrument of AMDs resurgence in the early years of the new millennium. AMD executives said its fabs have now shifted the next-generation AMD64 chips to the new 90-nm process, which augurs well for faster speeds and lower power, analysts have said.

/zimages/2/28571.gifRead more here about Athlon64 chips being put to use in thin-and-light notebooks.

AMD is officially "end-of-lifing" the AthlonXP chip and will curtail its shipments by the end of the first quarter of 2005, said Henri Richard, executive vice president of sales and marketing at AMD. The AthlonXP will be replaced by the Sempron, a low-cost value processor similar to the AthlonXPs design.

"Im kind of surprised, actually," said Dean McCarron, principal at Mercury Research Inc., based in Cave Creek, Ariz. "They were going to an end-of-life schedule, obviously, but its a bit more aggressive than I otherwise expected. I would think that would mean that the other [AMD64] products are doing well; they wouldnt be able to do that if they werent able to deliver volume."

Likewise, the increased ASPs mean that AMD is succeeding in the higher-margin server market.

Barry Crume, director of the companys workstation and server segment, said in an interview that the increase in net income was directly tied to server sales. "Higher server sales translate into higher ASPs," Crume said.

During the third quarter, AMD signed up America Online Inc., Merrill Lynch, Bell Helicopter, Sabre Holdings, BNP Paribas, E! Networks, Fox Sports and Agere Systems to use Opteron-based systems, the company said. A quarter of the Fortune 100 customer list uses AMD-based machines, AMDs Ruiz said during the conference call.

Next Page: Wilting sales in flash memory.