Barcelona delay could hurt AMD earnings

AMD is running late in bringing its quad-core Barcelona server chip to market, financial analysts said Wednesday

AMD will delay its launch of the Barcelona quad-core Opteron server chip from its expected date in July until October, setting the company back in its effort to compete with new processors from Intel, according to analyst reports.

Processor companies make more money selling server chips than desktop or laptop chips, so the move will hit AMD's 2007 earnings hard, pushing the company to lose $US2.59 per share instead of only $2.48 per share, according to a report released by Citigroup analyst, Glen Yeung.

"Barcelona is generally viewed to be AMD's best opportunity to stem server share loss to Intel. While AMD's recent notebook win at Toshiba may balance any negative revenue implications to our current model, Barcelona's delay has negative implications for AMD's gross margin," Yeung wrote.

His estimate is a larger loss than the consensus Thomson Financial forecast that AMD will lose $US2.47 per share for 2007.

The news comes at a bad time for AMD, which has promised for months that it would launch the chip in the second half of 2007, helping the company to rebound from the effects of a price war with Intel. AMD is already hurting, posting a $US611 million first-quarter loss in April, following on the heels of the $US574 million loss reported in January for fourth quarter earnings last year.

Barcelona is the key to taking that fiscal burden off AMD's shoulders, AMD CEO, Hector Ruiz, said on May 3 at the company's annual shareholder meeting. Although Intel is several quarters ahead in improving its chip manufacturing capabilities, AMD stayed competitive by creating more innovative designs, he said. AMD claims Barcelona will deliver better performance on memory-intensive applications than Intel's Clovertown quad-core Xeon server chips that have been on the market since November.

AMD, however, insists that it is still on schedule, and used as evidence its demonstration this week of prototype Barcelona chips in servers from infrastructure partners Supermicro Computer, Tyan Computer and Uniwide Technologies at the Computex trade show in Taipei.

"We remain on track for a summer 2007 launch, with partners shipping platforms in the third quarter," AMD spokeswoman, Marian Kelley, said. She blamed the delay rumours on Cray's announcement that it expects revenue to drop because of a delay in shipping its quad-core Cray XT4 systems. In fact, Cray was referring to AMD's midrange Budapest processor, not Barcelona, she said.

"The guidance that we've been giving and that we're sticking to is that Budapest will follow Barcelona in the second half of 2007," Kelley said.

Despite AMD's assurances, other analysts echoed the Citigroup report, and said they had heard similar news from server vendors, distributors and board makers.

On May 30, another report called AMD's promise to launch Barcelona in mid-2007 "a head fake" since the chip would not be available at full volume until August at the earliest, according to a note from analyst Patrick Wang at Thomas Weisel Partners.

In contrast, Intel is expected to succeed in shipping its Penryn processors in the late third quarter or early fourth quarter. That timing will allow Intel to essentially catch up to AMD, and soften the blow of losing sales to customers who see a performance advantage in Barcelona, Wang said.

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Ben Ames

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