July 17, 2002 2:25 PM PDT

AMD posts loss as PC sales dwindle

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A slowdown in PC buying resulted in a sizable loss and a large decline in revenue for chipmaker Advanced Micro Devices.

AMD's revenue for the second quarter, ended June 30, came to $600 million, and the company reported a net loss of $184.9 million, or 54 cents a share. Last year, AMD reported a net profit of $17.4 million, or five cents a share, on revenue of $985 million.

Like Intel, which reported a net profit of $446 million for the period but said it would layoff about 5 percent of its staff to cut costs, AMD blamed the depressed quarterly showing on a decline in PC sales.

AMD's PC processor sales dropped 35 percent, from $580 million to $380 million, from the same period a year ago and 44 percent from the first quarter, when PC processor revenue came to $684 million. In terms of units, PC processor shipments dropped from 8 million in the first quarter to around 6 million.

"We probably lost a couple of point in (market) share," said Hector Ruiz, AMD's chief executive officer, adding that to break even the company will have to boost revenue toward $900 million. "We don't have any sloppy businesses or old fabs we can shut down anymore. We've got to work on the top line to get to 900 million plus."

By contrast, flash memory, AMD's other principal product, grew slightly from last year because of sales of flash for high-end cell phones, the company said.

The Sunnyvale, Calif.-based company slashed revenue projections twice during the quarter because of sluggish demands in Europe and many consumer markets. By July, the company predicted sales would come in at $620 million to $700 million, far below the $820 million to $900 million expected back in March.

Company executives also were skeptical about a recovery. The PC market will likely pick up in the second half, but probably not by much, they said.

"We anticipate modest growth sequentially," Ruiz said.

The quarterly loss marks the fourth in the row for the company, which is not expected to return to profitability this year.

AMD's woes will also likely be compounded by its ongoing product transition. The Athlon line, AMD's flagship chip since 1999, has fallen behind Intel's Pentium 4 in terms of megahertz and overall performance. The fastest Athlon on the market today, the Athlon XP 2200 XP, tops out at 1.8GHz, 700MHz slower than the 2.5GHz Pentium 4.

By the holiday season, the gap will increase to 1GHz with Intel sporting a 3GHz desktop chip, Intel president Paul Otellini said Tuesday. He added that Intel gained a few points of market share from AMD during the second quarter.

While megahertz is only one measure of performance, it remains an important factor in consumer purchasing and pricing. The Athlon XP 2000, which runs at 1.7GHz, sells for about the same as the 1.7GHz Pentium 4 in the open market, according to Converge, which tracks component pricing, although the chip is comparable in performance to the 2GHz Pentium 4.

As a result of the gap, an increasing percentage of Athlon chips will be sold in midrange to budget PCs, rather than the more profitable high-performance segment where the chip used to live, analysts predict.

AMD is working on a new generation of higher-performance desktop chips--code-named Hammer but to be sold under the Athlon name--but they won't ship to PC makers until the fourth quarter. Hammer-based PCs won't appear on store shelves until the first quarter of 2003.

"With the release of Hammer in the first quarter, we believe we will regain our competitive position in the top of the marketplace," Ruiz said.

 

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