October 5, 2001 4:50 AM PDT

AMD blames Intel for earnings miss

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Advanced Micro Devices said Friday that fierce price competition from Intel took its toll on AMD's third quarter, which will fall well below analysts' expectations.

Price wars aren't anything new between AMD and Intel as the two chipmakers race to make faster--and cheaper--semiconductors. But Intel seems to have inflicted some body blows on AMD this quarter.

For the third quarter ending Sept. 30, AMD said it will report a pro forma loss between $90 million and $110 million, or 26 cents a share and 31 cents a share. That projected loss doesn't include restructuring and other charges, expected to be between $80 million and $110 million. AMD said last month it would lay off 15 percent of its work force.

According to First Call, AMD was expected to report a loss of 12 cents a share. Analysts have been trimming their estimates on AMD in light of profit warnings from PC makers such as Compaq Computer, Gateway and the price war with Intel.

Revenue for the quarter will fall 22 percent from the second quarter to about $766 million. Analysts were expecting revenue of $824.7 million, according to First Call. In August, AMD said sales would be down about 15 percent.

Unlike other tech companies that have issued profit warnings, AMD didn't blame the Sept. 11 terrorist attacks or a weak economy. Instead, it blamed Intel. "Intel resorted to aggressive pricing and large, cash-backed marketing programs, which had the effect of driving down ASPs (average selling prices) on PC processors," said CEO W.J. Sanders.

AMD said it held or gained market share in the quarter, but the price war hurt AMD as unit sales of processors stayed at record levels hit in the second quarter. AMD sold more than 7.7 million chips in the second quarter, but it has lost key customers, including Gateway and IBM, as PC makers look to cut costs.

On other fronts, AMD said sales of flash memory, which is used in wireless devices and other gadgets, fell by about $100 million, in line with previous estimates.

Analysts shouldn't be surprised by the toll Intel's price war has taken on AMD. Earlier this week, Gerard Klauer Mattison analyst John Geraghty cut his sales target to $788 million and predicted that average selling prices would fall to about $66.

Robertson Stephens analyst Eric Rothdeutsch also said Intel's aggressive pricing was hurting AMD. "Solid unit gains appeared to come at a price, with steeper-than-expected price declines driven by weak PC demand and aggressive pricing from Intel," he said.

Rothdeutsch said the launch of AMD's new Athlon XP processor on Oct. 9 may mitigate some of the pricing pressure.

 

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