AMD Warns of Financial Woes

The world's second largest PC chipmaker on Tuesday warned that it will post a "substantial operating loss" for the second quarter due to slower than expected sales.

Advanced Micro Devices, the worlds second largest PC chipmaker, today warned that it will post a "substantial operating loss" for the second quarter due to slower than expected sales.

"There is broad weakness in the personal computer market and it is adversely affecting AMD," Robert Rivet, AMDs chief financial officer said today. "The processor business, particularly in Europe and North America, is weak."

AMD said it now anticipates its quarterly revenue will total between $620 million to $700, more than 20 percent below its previous estimates.

Prior to AMDs mid-quarter update today, Wall Street analysts had been projecting the company would loss about 9 cents per share on sales of about $840 million, according to Thomson Financial/First Call.

AMD blamed continued weakness in desktop sales and slumping sales of notebook sales for undermining its forecasts.

"The desktop market has been relatively poor for a while, and that has probably worsened, in particular the consumer desktop segment has been very, very poor as of late," said Rob Herb, AMDs chief sales and marketing officer, said in a conference call with market analysts late today. "Mobile was a real bright spot for us, particularly through the first quarter. But the most recent sales numbers … seemed to have dropped off pretty significantly."

AMDs also struggling to overcome a perception that its Athlon XP processors are unable to keep pace with speed increases in Intel Corp.s Pentium 4 line. Currently, the fastest processor being sold by Intel is a 2.5GHz Pentium 4, by contrast AMDs top-of-the-line processor is the Athlon XP 2200+, which operates at 1.8GHz.

While AMD contends that the Pentium 4s faster clock speeds are misleading and that its Athlon chips can outperform Intels top Pentium chip, company executives admitted that theyve been unable to get that message across to consumers, and thus have had to price their products lower.

"We cant play in the highest price points in the desktop space, and so there weve had to acknowledge that were probably going to suffer somewhat, and potentially lose some share in the desktop space," Herb said.

In the last three years, AMD began slowly eroded Intels dominant market share, climbing from the 15 percent of the market to slight more than 22 percent. But in early 2001, Intel began slashing processor prices aggressively in a bid to halt slumping sales and recapture market share. Intels efforts had largely continued, with the chipmaker slashing prices on its top-performing chips more than 50 percent between April and May of this year.

The heightened competition has ultimately helped undermine AMDs U.S. sales, said Hector Ruiz, the chipmakers chief executive officer. While AMD remains "bullish" about growth in foreign markets, such as Asia and Japan, Ruiz said, "In the U.S., its a real battle, because as we continue to make progress toward being an acceptable alternative in the commercial space, the competition gets stiffer and stiffer."

Despite the gloomy sales forecast, AMD executives said they remain confident that market conditions will improve later this year.

"We continue to believe there will be a second half seasonal upturn for PCs," finance officer Rivet said.

AMDs warning comes two weeks after Intel Corp. stunned investors by lowering its sales projections, spurring a sell-off of stock that sent shares of the worlds largest chipmaker plummeting about 20 percent over two days.

In after-hours trading following AMDs warning, the chipmaker was suffering a similar fate, with its shares losing about 13 percent of their value.

AMD will formally detail its second-quarter results July 17.