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AMD tanks 27% on lower forecasts

Advanced Micro Devices Inc shares tumbled 27 percent on Friday after the computer-processor maker said second-quarter sales and profit missed forecasts as chip prices declined.

The shares fell US$7.84 to US$20.80. They had more than doubled this year before Friday.

Advanced Micro, Intel Corp's biggest rival in the market for personal-computer processors, had to reduce its prices more than expected to keep up with Intel's steep cuts on its Pentium 4 chip.

Advanced Micro said profit was US$0.03 to US$0.05 a share, less than a fifth of the US$0.27 average estimate of analysts polled by First Call/Thomson Financial.

"They discounted very heavily," Robertson Stephens analyst Eric 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, Intel and other chipmakers have struggled this year as sales slowed. Demand also declined more than expected for Advanced Micro's other main product -- flash-memory chips that store data while cellphones and other devices are shut off.

Second-quarter sales dropped 17 percent from the first quarter to US$985 million, instead of the 10 percent decline predicted in April.

The Sunnyvale, California-based company earned a split- adjusted US$0.61 a share on sales of US$1.17 billion in last year's second quarter.

Advanced Micro had been faring better than rivals 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. The chipmaker said it sold record numbers of its Athlon and Duron PC processors in the second quarter.

Rothdeutsch estimates the company shipped more than 7.3 million units, beating analyst forecasts of 6 million to 6.75 million. That shows that customers are less hesitant to buy from the chipmaker, he said.

Still, Intel is lowering 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.

"Pricing pressure is driving sharply reduced gross margins for AMD's microprocessor business," Merrill Lynch analyst Joe Osha wrote in a note to clients.

He sees gross margin, the percentage of sales left after subtracting manufacturing costs, at 31.4 percent -- rather than 40 percent in first quarter. Osha now expects second-quarter earnings of US$0.04 a share, rather than US$0.22, and full-year profit of US$0.74, down from his previous target of US$1.37.

Credit Suisse First Boston analyst Tim Mahon now predicts US$0.65 for 2001, rather than US$1.33.

Advanced Micro will report final second-quarter results next Thursday. Company spokesman John Greenagel declined to elaborate on a statement.

The second quarter is traditionally slow for PC sales.

Analysts expect PC shipments to fall to 29 million units from 32.5 million in the first quarter.

Much of the demand left has come from the low end of the market, as consumers and business look to shave costs. Advanced Micro sold more of its less-expensive Duron chips, analysts said, pushing down its average selling price. The company also had to offer lower prices on old models of its flagship Athlon chips to get them off the shelves, analysts said.

"The implications of AMD's miss are clear -- the PC business is seeing mix migrate toward the low end at a dramatic rate," Osha wrote.
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