AMD posts $611 million loss, slow chip sales

AMD posted its second straight loss on Thursday, reporting a loss of $611 million for the first quarter

For the second straight quarter, AMD has posted a loss. This time it lost $US611 million in its chip-manufacturing business during the first quarter of 2007.

Wall Street analysts had expected bad news, since AMD warned on April 9 that it would miss its revenue forecast of $US1.6 billion to $US1.7 billion. In response, the average earnings estimate was for a loss of $US0.48 per share on revenue ofUS $1.26 billion, according to Thomson Financial.

In reality, AMD came in far below that, reporting a loss of $US1.11 per share on revenue of $US1.23 billion for the quarter ending March 31. For comparison purposes, AMD's loss was $US0.90 per share, excluding $US113 million in expenses used to acquire ATI and integrate that graphics processing company into AMD's business, Thomson said.

The loss was also far below AMD's performance in the first quarter of 2006, when it earned profit of $US185 million on revenue of $US1.33 billion. However, AMD warned analysts not to compare the two figures, since the company began including ATI's revenue in its numbers in October 2006.

AMD also blamed "significantly" lower microprocessor unit shipments and lower selling prices for the loss. In recent months, AMD has been in a price war with rival, Intel.

In response to the "disappointing and unacceptable" results, AMD CFO, Robert Rivet, said in a statement that the company would realign its business model to cut costs. In its warning to analysts, the company had promised to cut its 2007 capital expenditure by $US500 million and limit hiring to critical positions.

AMD will now expand that recovery plan, slashing discretionary spending by $US100 million annually and making further cuts in hiring. "We plan to leave the year with a lower headcount than we have now," Chief operating officer, Dirk Meyer, said in a webcast with investors. He declined to say whether that statement was a hint about pending layoffs.

The other part of AMD's plan is to redouble its efforts to launch the pending Barcelona quad-core Opteron chip on schedule. "We know we cannot cut our way to prosperity," Meyer said. The company began shipping pre-production samples of the new chip to computer vendors during the first quarter and plans to ship production samples in the second quarter, allowing vendors to launch both desktops and servers using Barcelona chips in the third quarter.

Finally, AMD CEO, Hector Ruiz, said he would form an executive task force with his management team to consider larger issues, such as moving AMD offices to different locations or finding new investors. Asked about rumours that private equity firms could purchase an interest in the company, he said he would explore any funding source that didn't cramp his long-term goal of winning more market share from Intel and bringing more competition to the processor marketplace.

However, Ruiz denied AMD would undertake a full-scale reorganisation such as the changes made at Intel, which included more than 11,000 layoffs, about 10 per cent of that company. "We are not going to change our goals, our objectives, our technology, our strategy because of one lousy quarter," he said.

Together, these steps should help AMD recover from a "perfect storm" of four factors that caused the company's earnings setback in the quarter, he said. First, AMD was beset by growing pains that caused it to fall behind in supplying chips to its distribution channel customers, as it rushed to deliver processors for new contracts with original equipment manufacturers (OEMs). At the same time, the company was hurt by pricing pressure from Intel, better quality chips from Intel and other competitors and weakening demand in the consumer electronics business.

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Ben Ames

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