AMD is bloodied from price war
Waging a war against its larger rival has exacted a toll on Advanced Micro Devices Inc.
On Monday, the No. 2 chip maker, acknowledging that it had been wounded in its battle with Intel Corp., announced that its first-quarter revenue would be 20% shy of Wall Street’s expectations.
In response, AMD, which is based in Sunnyvale, Calif., said the company would be restructured. It said it would hire only critical positions and lop $500 million from the roughly $2.5 billion it planned for capital spending this year. Some analysts predicted that the company would have a round of layoffs.
Shares of AMD rose 49 cents Monday to $13.35 as investors applauded the cost-cutting plan. AMD shares are down about 60% from their 52-week high of $35.75 in April 2006.
Over the last three years, AMD has launched a serious challenge against Intel Corp., long the dominant supplier of microprocessors, which power electronic devices such as computers.
By introducing a flurry of new products and discounting its prices, AMD increased its global market share to a record 25% by the end of last year. Intel’s fell to 74%. Intel’s market share was 83.7% at the end of 2004 and AMD’s was 14.7%.
But AMD’s aggressive strategy woke up Intel, which responded by cutting some prices and ramping up its product line. In its statement Monday, AMD attributed its drop in revenue to the price war and a drop in orders from resellers -- small, independent computer makers that have been buyers of AMD chips.
The company will report its first-quarter earnings April 19, when it says it will give more details of its restructuring.
AMD’s struggle with Intel is reminiscent of other corporate David-and-Goliath battles such as the one that pit Hertz Corp. against smaller competitor Avis Rent A Car System.
“Like Avis, AMD always plays the ‘We try harder’ card,” said Samir Bhavnani, research director of Current Analysis Inc., a San Diego-based market research firm.
Analysts say that in the long term, they don’t believe AMD will back away from its strategy. After all, they say, both companies are in a fight for market share. But AMD will need to find its footing until it starts rolling out its next line of products, expected this summer.
For now, the chief winners in the battle are consumers, says John Spooner, a senior analyst with Technology Business Research Inc., a research firm in Hampton, N.H.
“What we see happening is that AMD is lowering prices on very good processors to compete with Intel’s latest products, which are better performing,” he said.
“Midyear, AMD will introduce a new line of products and prices will drift up a bit.”
