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AMD reports losses in Q1, plans strategic overhaul

After a three-year run, Advanced Micro Devices Inc (AMD) is back on the defensive.

The company, which makes computer processors, announced on Thursday that its loss during the first quarter was even bigger than expected, hurt by slower sales and a bruising price war with its larger rival, Intel Corp.

Losses amounted to US$611 million, or US$0.11 a share, in contrast to a profit of US$185 million, or US$0.38 a share, in the period a year earlier. Excluding stock compensation expenses and the cost of acquiring ATI Technologies last year, AMD's loss was US$0.85 a share, compared with the US$0.48 a share predicted by Wall Street analysts.

"The first quarter was totally unacceptable," said Robert Rivet, AMD's chief financial officer. "It was a terrible start to the year."

AMD executives said they planned a drastic shift in business strategy and would cut spending US$500 million this year, reduce discretionary expenses an additional US$100 million and limit hiring.

AMD chief executive Hector de Ruiz said he would form a task force to evaluate the company's options and described the strategic shift as even more intense than the one AMD undertook in its last revamping in 2002.

First-quarter revenue totaled US$1.23 billion, a decline of 7.4 percent from last year and 30 percent from the fourth quarter, driven by slower sales and lower average selling prices, company executives said.

"It was a really challenging environment for them," said Tim Luke, an analyst with Lehman Brothers in New York.

AMD, long considered the underdog of the microprocessor industry, took some market share from Intel in the last few years. While the chip giant struggled to recover, AMD beat it to market with a new chip technology known as multicore.

Intel fought back quickly by overhauling its product line and upgrading its production process. Intel is widely thought to be regaining market share from AMD.

In contrast to AMD's report, Intel reported on Tuesday that its profit rose 19 percent, helped by a tax benefit and improved manufacturing, although its sales declined slightly.

Dirk Meyer, AMD's president and chief operating officer, said a confluence of factors led to the first-quarter results, including pricing pressure that started early last year and an imbalance of sales to distributors and computer makers.

Looking to the second quarter, AMD said it expected flat to slightly increased revenue, partly because of seasonal declines.

Analysts polled by Thomson Financial projected sales of US$1.33 billion in the quarter with a loss of US$0.38 a share.
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