September 3, 1997 7:30 PM PDT

AMD warns of loss

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Advanced Micro Devices can't seem to make enough K6 microprocessors--to make a profit that is.

The Sunnyvale, California-based semiconductor manufacturer has said it will report a "small operating loss" for the third quarter because production estimates for its K6 microprocessors are falling below expectations. AMD claims it will make one million K6 chips this quarter, close to three times the number of K6 chips manufactured in the previous quarter, but on the low end of the company's projections.

The announcement makes it inevitable that AMD will have two successive disappointing quarters. Not surprisingly, AMD is trading today at approximately 9 percent below yesterday's closing price of 38 7/8.

The K6 is AMD's answer to Intel's high-end Pentium and lower-end Pentium II processors. Released earlier this year, the chip runs at speeds up to 233-MHz, while 266-MHz and 300-MHz versions are expected in the near future. Price cuts in the semiconductor arena have sent prices of the K6 plummeting. The 166-MHz version now sells for approximately $100 in bulk for computer vendors, down from $190 earlier in the year.

In particular, AMD is getting low yields for 233-MHz versions of the chip, according to Ashok Kumar, semiconductor analyst with Southcoast Capital. Yields for the 200-MHz and 166-MHz versions of the K6 appear to be adequate. Demand for the 200-MHz version is better than for the 233-MHz chip, Kumar adds.

"Unit output at this level will not provide sufficient revenues to offset the significant costs associated with ramping a product with the complexity of the K6," said chief executive W.J. Saunders, in a prepared statement. "The profits from our non-microprocessor businesses will not be sufficient to offset this deficit," he added.

"We are not customer constrained but production constrained," added an AMD spokesperson.

The company predicted that it would be able to produce approximately two million K6 chips in the fourth quarter," he said.

Although it turned a profit last quarter, AMD came in below most analysts expectations. Earnings came in a 7 cents a share, below the expected 23 cents a share.

While few major computer manufacturers adopted the chip on its release, AMD has seen a number of design wins in the past few months. Digital and IBM have adopted the chip in recent months.

 

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