AMD reports 33 percent drop in Q4 revenue

Advanced Micro Devices reported a steep loss and declining revenue for its fourth quarter

Advanced Micro Devices reported a steep loss and declining revenue for its fourth quarter as the chipmaker continued to suffer amid the faltering economy.

AMD reported a loss of US$1.42 billion for the quarter ended Dec. 27, an improvement on its loss of $1.77 billion a year earlier. Revenue fell to $1.16 billion, however, down from $1.74 billion in the fourth quarter of 2007, AMD said.

The loss included a goodwill impairment charge of $684 million related to AMD's acquisition of ATI Technologies in 2006. Excluding that and other one-time charges, the loss would have been $418 million, or $0.69 per share, AMD said.

Analysts had been expecting revenue of $1.23 billion and a loss per share before charges of $0.54, according to a poll by Thomson Reuters.

"The fourth quarter is going to be remembered for the severe stresses placed on the global economy and on our industry," AMD President and CEO Dirk Meyer said in a conference call to discuss the results. "The global economic environment led to a softening in end-user demand for PCs and servers in what is usually the year's strongest quarter."

AMD expects revenue from the first quarter this year to be lower than in the quarter that just ended, it said. It cited the weak economy, limited visibility and "corrections in the supply chain," meaning computer makers have been cutting orders for chips to clear out excess inventory.

The volume of microprocessors AMD shipped was down in all segments, CFO Bob Rivet said. Average selling prices fell overall, he said, although they were kept afloat in the server segment by new quad-core Opteron chips that shipped in the quarter.

The Computing Solutions Group, which sells AMD's PC and server chips, reported an operating loss of $431 million, including a $227 million writedown against excess inventory. Revenue from the group was $873 million, down 27 percent from the third quarter.

Its graphics business reported an operating loss of $10 million on $270 million in revenue, which was down 30 percent from the revenue in the third quarter.

The results follow AMD's news on Monday that it will cut 1,100 more jobs and lower its workers' salaries to reduce costs. The job cuts follow about 2,100 layoffs that AMD announced last year.

Almost the entire PC industry is suffering from the economic climate, which has caused both businesses and home users to cut back spending. Fourth-quarter PC sales declined by 0.4 percent in the fourth quarter, IDC said last week, and it expects them to stay weak through at least the end of this year.

Earlier Thursday, Microsoft announced an 11 percent drop in net income for the December quarter, while revenue rose just 2 percent, showing how the recession is affecting even the strongest companies.

Intel, AMD's larger rival, said on Wednesday it would cut up to 6,000 jobs worldwide and close four chip plants. A week earlier it announced that its fourth-quarter profits had plummeted 90 percent from a year earlier, on a 23 percent drop in revenue.

AMD is in the midst of a plan to break itself into two companies to help turn its business around. The plan would see AMD continue to design and market its chips but spin off its costly manufacturing business into a separate company, called The Foundry Co., that will be owned mostly by an investment company in Abu Dhabi.

The plan has now cleared all the major regulatory hurdles, Meyer said, and AMD's shareholders will vote on Feb. 16 whether to approve the deal. AMD expects to complete the deal as soon as the next day after that, he said.

Intel has thrown up a last-minute question about the deal, however. It has asked to meet with AMD to discuss whether formation of the new company will breach provisions of existing patent cross-licensing agreements between Intel and AMD, according to a regulatory filing by AMD on Thursday.

Intel wants to discuss whether The Foundry Co. will constitute an AMD "subsidiary" as defined by the agreements. It is also concerned about how AMD's ATI acquisition may affect the agreements, according to the filing.

Rivet said on the conference call that Intel's letter is "in no way a condition" to AMD closing the Foundry deal, and that AMD expects to complete it on schedule if it gets the green light from its shareholders.

Spinning off its manufacturing business should improve AMD's financial position. Rivet said it will provide AMD with a cash injection of $700 million, and Meyer said AMD will be able to transfer debts from its fab in Dresden, Germany, to the The Foundry Co.

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James Niccolai

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