Advanced Micro Devices Inc, Intel Corp's biggest rival in the market for computer processors, said second-quarter profit fell 92 percent on steep price cuts and slow demand for some chips. The company may report an operating loss this quarter as sales drop further.
Net income fell to US$17.4 million, or US$0.05 a share, from US$207.1 million, or US$0.60, a year earlier. Sales dropped 16 percent to US$985.3 million. Revenue in the current quarter may fall 10 percent to 15 percent from the prior period, the company said.
Advanced Micro's average PC-chip price fell to US$75 and probably won't rise this quarter as the company cuts prices to keep up with Intel, Chief Executive Jerry Sanders said. At the same time, sales of flash-memory chips for electronic devices slumped, and may decline as much as 30 percent in the third quarter. The company said it will keep reducing prices to win market share.
"We're not going to be pushed out of the ring by a sumo wrestler," Sanders said on a conference call. "We will not lose market share."
The company gained against Intel during the quarter, ending with 22 percent of the PC-chip market, compared with 16 percent a year ago, according to preliminary data from Mercury Research.
Intel controlled 76 percent in the recent quarter, down from 83 percent.
Advanced Micro shares rose slightly to US$23.50 after the report. They had gained US$1.58 to US$22.70 in regular US trading before the release. The stock has fallen 21 percent since the company reduced its estimates last week and have risen 64 percent so far this year.
The company said it hopes to have a profit in the seasonally strong fourth quarter, when demand may rebound. Analysts expected Advanced Micro to have profit of US$0.11 a share in the current period and US$0.23 in the fourth quarter.
In the third quarter of 2000, the company's profit from operations was US$219.3 million, or US$0.64 a share, on sales of US$1.21 billion.
Sales in the year-ago second quarter include US$63 million in discontinued operations.
Advanced Micro said it sold more than 7.7 million PC chips during the quarter, a record. Still, lower prices hurt revenue.
Intel has reduced the cost of its Pentium 4 by as much as 69 percent since the chip's November introduction.
"It hurts -- they're fighting a very formidable foe," said Thomas Weisel Partners analyst Eric Ross, who rates the shares "buy." "They're in a painful market-share acquisition mode. In 2002, they'll start to reap the benefits."
The Sunnyvale, California-based chipmaker on July 5 said earnings for the recent period fell far short of forecasts, based on a preliminary report. Before that, analysts on average had been expecting profit of US$0.27 a share, according to First Call/Thomson Financial.
Clients tried to renegotiate contracts and deliveries until late into the quarter, Sanders said. More than half of the units shipped came in the last month of the period, he said.
That situation may not improve much this quarter. Orders for chips used in back-to-school computers roll in slowly, usually toward the end of the quarter. With Microsoft Corp's new Windows XP due out Oct. 25, even more orders could be delayed.
"We're cautiously optimistic at this point," Robertson Stephens analyst Eric Rothdeutsch said earlier in an interview with Bloomberg Television. "In this economic environment, anything can happen."
Advanced Micro is asking some US plant workers to take one week of vacation every quarter to try to balance output with demand. The company cut capital spending plans to US$900 million this year from the US$1 billion expected earlier, and will try to reduce that further later this year.
"AMD overall is executing very well in an exceptionally weak market," Sanders said.
He wants the company's chips to be in 50 percent of US
retail sales of notebook computers by the end of the year. Advanced Micro will start selling 1.5-gigahertz versions of its Athlon chip for desktops this quarter, with a 1.733GHz model in fourth quarter.
The increasingly popular Duron chip for cheap PCs will move to 1GHz this quarter.
Sales of flash memory, which stores data when devices such as cell phones are switched off, fell more than expected. The company's flash sales fell 23 percent from the first quarter.
Advanced Micro rivals have also reported disappointing sales.
Atmel Corp, which gets a quarter of its revenue from flash, said Wednesday second-quarter sales are likely fell 30 percent from the first quarter.
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