AMD swings to loss amid war with Intel
Chip maker Advanced Micro Devices Inc. swung to a sharp first-quarter loss Thursday after bets it made to challenge bigger rival Intel Corp. backfired.
AMD posted its second consecutive money-losing quarter. The Sunnyvale, Calif.-based company lost $611 million, or $1.11 a share, compared with a profit of $185 million, or 38 cents a share, during the same period last year.
Analysts polled by Thomson Financial on average had expected AMD to lose 48 cents a share.
“Our first quarter is disappointing and unacceptable,” said Robert Rivet, the company’s chief financial officer.
Revenue fell 7% to $1.23 billion.
AMD stock gained 37 cents to $14.28 before the earnings report, then rose to $14.50 in after-hours trading.
The company attributed its lackluster performance to a combination of factors, but the major one was a drop in sales of its biggest product: the microprocessors that are the brains of personal computers and servers.
In the last several years, AMD has chipped away at Intel’s dominance in the microprocessor market. But Intel responded fiercely by cutting prices and ramping up its production of new products.
AMD is having trouble keeping up. Santa Clara, Calif.-based Intel posted a first-quarter profit this week.
In a conference call with analysts after announcing its financial results, AMD executives said the company had struggled to supply enough chips to meet the needs of computer makers.
The main issue affecting AMD in the first quarter was its reliance on Dell Inc., said Michael McConnell, a research analyst with Pacific Crest Securities. Dell was demanding more AMD chips, so AMD rolled the dice with the world’s No. 2 computer maker -- it diverted more of its products to Dell than to other computer makers.
But the bet didn’t pay off.
“Dell built up inventory of AMD chips and things weren’t selling,” McConnell said. “So Dell cut its forecast for what it would need from AMD. AMD wasn’t expecting it.”
Dell spokeswoman Anne Camden declined to comment on AMD’s results.
“We added AMD-based servers to our product portfolio last spring and then desktops and notebooks in the fall, which enables our customers to have the flexibility to customize the systems to meet their needs,” she said.
The consecutive quarterly losses put pressure on AMD to deliver on its next line of microprocessors, called Barcelona, which will begin shipping in the third quarter. Barcelona, which packs four processors onto a single piece of silicon, is expected to generate more computing power in servers.
“The issue is production discipline, which keeps supply and demand in balance,” said Ashok Kumar, managing director of Raymond James & Associates. “Any deviation from that will exact pain.”
AMD executives said they would reorganize the company during the next year, with cuts primarily in capital expenditures. They also plan to cut an unspecified number of jobs.
