AMD Unlikely To Meet First-Quarter Revenue Target - InformationWeek

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AMD Unlikely To Meet First-Quarter Revenue Target

CEO Ruiz blames the "blip" on pressure to meet obligations to PC makers such as Dell and Hewlett-Packard.

Advanced Micro Devices on Monday said it's unlikely to meet its revenue target for the first quarter, but chairman and chief executive Hector Ruiz promised the stumble was only a "blip" and that the company would regain steady growth in the second half of the year.

Shortly before Ruiz was to appear at the Morgan Stanley Technology Conference, the Sunnyvale, Calif., company reported that it would likely fall short of its previous revenue forecast of $1.6 billion to $1.7 billion for the first quarter. Analysts polled by Thomson Financial had expected revenue of $1.66 billion for the period ending March 31.

Ruiz, however, told analysts at the San Francisco conference that the disappointment was temporary, and the company was "very bullish" for the second half of the year. "We've had a blip here this quarter, and we don't see that as being a long-term blip. We expect to recover."

Ruiz blamed the shortfall on the company being under "incredible pressure" to meet its obligations to PC manufacturers that had long-range product plans, roadmaps and commitments. "When you go from being, in a rather short period of time, someone who's significant to many OEMs, and then becoming very significant to a large number of OEMs, that becomes pretty challenging," he said.

But analyst firm Technology Business Research said AMD's problems stem, in part, from slower desktop PC sales that left the chipmaker's customers with higher-than-expected inventories of its chips, causing them to cut back on purchases. Making matters worse, AMD was unable to shift processor shipments to resellers fast enough to counter the sales drop.

AMD customer Dell, for example, suffered an 18% year-over-year drop in desktop sales in the fourth quarter that ended in January, and another major customer, Hewlett-Packard, had increased desktop shipments by only 3% during its fiscal first quarter that also ended in January, TBR said. "We believe that AMD may have been counting on more desktop business from the PC makers or possibly more of a bump from Windows Vista PC sales during the early part of the first quarter."

With Intel coming back strong in the desktop and server markets, AMD is expected to face pricing competition that will hold down its gross margin until it ships its Barcelona quad-core Opteron processor, late in the second quarter or early in the third quarter, TBR said. Nevertheless, Ruiz assured analysts that the sales drop wouldn't continue in the second half of the year. "I wouldn't count on our current situation as being indicative of the long-term view on how the company will perform," he said. He pointed out that AMD had grown faster than Intel by a factor of two in the market in the last 12 quarters and still believed it would reach above the 30% share needed to make the claim that it had "broken the monopoly" held by Intel in the x86 market.

Ruiz's presentation at the conference was in the form of a Q&A. When a questioner said the company was expected to lose money in the first and second quarter, the CEO was quick to clarify. "I'm not acknowledging what you said," Ruiz said. However, "we are definitely challenged when our revenue drops in trying to maintain profitability."

On last year's $5.4 billion acquisition of graphics chipmaker ATI Technologies, Ruiz said the company believed its upcoming Fusion processors would be a major growth driver. Those chips, scheduled to ship in 2009, will merge x86 and ATI graphics cores on one chip. The company has already started selling chipset packages that incorporate graphics capabilities from ATI.

AMD is banking on graphics becoming a major component of consumer computing devices, Ruiz said. "We think visualization in computing is going to play a very big role all the way from handheld devices to very high-end devices and somebody's desktop."

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