Advanced Micro Devices Inc, Intel Corp's biggest rival in the market for computer processors, said second-quarter sales and profit missed forecasts because demand slumped and chip prices dropped.
The company's shares sank 18 percent on Thursday after it said sales fell 17 percent from the previous period to US$985 million, instead of the 10 percent drop predicted in April. Profit was US$0.03 cents to US$0.05 a share, far less than the US$0.27 average estimate of analysts polled by First Call/Thomson Financial.
Advanced Micro, Intel and other chipmakers have struggled this year as demand slowed. Intel has been slashing the price of its Pentium 4 processor, hurting Advanced Micro as it tried to keep up. Demand declined more than expected for Advanced Micro's other main product, flash-memory chips that store data while cell phones and other devices are shut off.
"This might be bigger than what people thought," said Scott Vergin, a fund manager at Lutheran Brotherhood Inc, which owns 300,000 Advanced Micro shares.
The company had a split-adjusted profit of US$0.61 a share on sales of US$1.17 billion in last year's second quarter.
Advanced Micro shares fell as low as US$23.53 after trading resumed. Before the shares were halted for the release, they fell US$1.12 to US$28.64 in regular US trading and have more than doubled this year.
Intel shares fell 4.7 percent to US$28.44 after Advanced Micro's report, and flash-memory maker SanDisk Corp dropped 6.8 percent to US$24.25.
Advanced Micro had been suffering less than other companies as it tackled technical hurdles and picked up sales. During the first quarter, Advanced Micro won 21 percent of the PC-processor market -- up from 17 percent in the December period. Executives expected the second quarter to be slow. Although demand for PCs had started to show signs of a pickup, executives said sales of the communications gear would still be sluggish.
* AMD expects its second-quarter sales to fall 17 percent from the previous period to US$985 million, instead of the 10 percent drop forecast in April.
* That works out to earnings of US$0.03 cents to US$0.05 a share, far less than the US$0.27 analysts had expected.
* AMD's shares sank 18 percent on the news, and competitor Intel also traded lower.
Source: bloomberg
"This is going to be the toughest quarter," Chairman Jerry Sanders said in April. "The PC industry has now gotten inventory in pretty good shape. We do not expect a precipitous falloff in Q2."
Intel said last month that second-quarter sales would be "slightly below the midpoint" of the US$6.2 billion to US$6.8 billion range Intel predicted in April. Hitting US$6.2 billion would be a 7.1 percent drop from the first quarter.
Sales of PC processors were steady during the quarter, Intel said in June, with flash sales meeting forecasts and weaker-than-expected sales of networking chips.
Intel spokesman Chuck Mulloy declined to comment Thursday.
Advanced Micro said it sold record numbers of its Athlon and Duron PC processors. The company shipped more than 7.3 million units, beating analyst forecasts of 6 million to 6.75 million, Robertson Stephens analyst Eric Rothdeutsch said. That shows that any hesitancy to buy from the chipmaker has eroded, he said.
Still, Intel is reducing the price of its Pentium 4, which has come down as much as 69 percent since its introduction in November. Higher shipments couldn't make up for the price drops, Advanced Micro said.
"They discounted very heavily," Rothdeutsch said. "There's nothing AMD really could have done -- PC demand is weak, and both Intel and AMD are cutting prices to try to spur some demand."
Advanced Micro's prices fell 18 percent to 50 percent during the quarter, he estimated. That hurt profit more than the weaker flash sales, he said.
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