AMD Swings To A Loss From Fierce Competition - InformationWeek

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AMD Swings To A Loss From Fierce Competition

After three years of growth, the chipmaker noted its gains against Intel in the PC and server markets were heading to a close.

Advanced Micro Devices, which has suffered a pounding in the market from rival Intel, reported on Thursday that it swung to a loss in the first quarter, as revenues fell 7%.

For the quarter ended March 31, the chipmaker posted a net loss of $611 million, or $1.11 per share, compared with a profit of $185 million during the same period a year ago. Revenues fell to $1.23 billion from $1.33 billion a year ago.

AMD's losses included charges related to last year's $5.4 billion acquisition of graphics chipmaker ATI Technologies. The integration charges amounted to $113 million, or 21 cents a share. In addition, the results included employee stock-based compensation expenses of $28 million, or 5 cents a share.

Nevertheless, the overall results indicated that AMD's gains last year against Intel in the PC and server markets were heading to a close.

"After more than three years of successfully executing our customer expansion strategy and significantly growing our unit and revenue base, our first quarter performance is disappointing and unacceptable," Robert J. Rivet, AMD's chief financial officer, said in a statement.

The company's gross margin in the quarter, excluding acquisition and stock-based compensation expense, plummeted to 31% from 40% in the fourth quarter of 2006, and 59% a year ago. The drop was due to "significantly lower" shipments of microprocessors, a drop in average selling prices, and the inclusion of ATI operations, which generally have lower-margin products, for the entire quarter, AMD said.

"Ugly, ugly, and even uglier," Jim McGregor, analyst for In-Stat, said of AMD's results. The poor showing was primarily due to Intel's resurgence with stronger products. "It demonstrates the fact that you have to constantly be at the top of your game and on top of the market competition, if you want to survive and be profitable," he said in an e-mail.

Revenues from AMD's Computing Solutions segment fell 38 percent from the fourth quarter to $918 million. Year-over-year, server and desktop processor sales declined significantly while revenues from notebook processors increased.

In its outlook for the second quarter, AMD said it expected revenue to be flat to slightly up.

On Tuesday, Intel reported far stronger earnings than AMD for the first quarter, which is seasonally slow for chipmakers. The company reported a 19% increase in net income to $1.61 billion. A good portion of the increase was due to an injection of $300 million, which had previously been set aside for taxes. Revenues, however, fell 1% from a year ago to $8.85 billion. The company's gross margin for the quarter was 50.1%.

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