AMD revenue rises on strong Opteron sales

Driven by strong sales of its dual-core Opteron processor, Advanced Micro Devices (AMD) reported US$1.33 billion in revenue for the first quarter of 2006, equaling analysts' estimates. That was up from US$1.23 billion for the first quarter of 2005, or US$780 million excluding revenue from the Spansion memory chip unit it spun out in 2005.

The company's earnings per share far exceeded the consensus estimate of analysts polled by Thomson Financial, hitting US$0.38 compared to an expected US$0.30.

Sales in the first quarter were driven by strong demand for dual-core processors for servers and workstations, leading to record sales of the Opteron processor, AMD said. Another factor driving company earnings was an increase in average selling price, according to the company.

In general, users in the commercial sector increased their adoption of systems with AMD's server and desktop chips, compared to rival Intel Corp. Sales of the Turion 64 mobile processor were also up compared to the fourth quarter of 2005, the company said.

During a conference call Wednesday with investors, AMD President and Chief Operating Officer Dirk Meyer said much of the company's first quarter growth had come from the increased use of Opteron chips by original equipment manufacturers and channel partners, including Chinese computer vendors Tsinghua Tongfang Co. and Lenovo.

That led to particularly strong sales in Greater China, Latin America, Russia and South Asia, according to AMD.

AMD is primed to continue that success in the future, continuing its string of at least 20 percent year-over-year growth for the past 11 quarters, Meyer said.

The company expects future revenue to come from increased production. In March, AMD began shipping the first chips to be made in its Fab 36 plant in Dresden, Germany.

Company leaders added this plant to reach their goal of doubling chip production between 2005 and 2008. Workers there produce Athlon and Sempron processors from 300-millimeter silicon wafers at a 90-nanometer scale. They plan to shrink that geometry to 65 nanometers by the middle of 2007.

AMD is also completing its migration from single core to multicore chips. On Tuesday, AMD released the last scheduled upgrade to its family of single-core Opteron processors. Opteron models 256 and 856 are available now, and model 156 is due on the market within 30 days.

Immediately after the announcement, computer vendors IBM, Hewlett-Packard and Sun Microsystems announced they would add the new chips to their workstation and server lines.

"AMD's technology advantages over Intel peaked toward the end of last year, but what we're seeing in Q1 is that they still have some pretty substantial advantages," said Nathan Brookwood, an analyst with Insight 64, following the announcement.

"AMD has been running roughshod over them in the server market; they have more than doubled their chip sales over the last year, which is impressive. And AMD continues to win most of the benchmarks in desktops," Brookwood said.

He acknowledged that Intel will be a tougher competitor by the end of 2006, following the launch of its 65-nanometer, dual-core chips; Woodcrest for servers, Conroe for desktops and Merom for notebooks.

But in terms of customer perception, the damage may have already been done. "AMD had been a wannabe supplier for a number of years, and although they are still obviously smaller than Intel, they have gained a great amount of credibility," Brookwood said.

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