AMD warns of earnings shortfall

Advanced Micro Devices (AMD) has warned for the third time that it faces a earnings shortfall for its first fiscal quarter, citing lower than expected shipments of K6-2 processors and a drop in the average selling prices of the company's chips due to severe competition.

Based on preliminary analysis, first-quarter revenues for the company are expected to be about $US630 million, compared with $US541 million for the same quarter a year ago, and $US789 million in the fourth quarter of 1998.

AMD shipped 4.3 million K6-2 processors in the first quarter of this year, "substantially below plan," the company said in a statement. While the vendor was selling fewer chips than expected, AMD was also making less revenue on each processor than in prior quarters. Price competition, particularly for processors with frequencies below 400MHz, forced average selling prices for K6-2 chips down to $US78, the statement said.

In addition, "previously reported yield problems that impacted December production of AMD-K6-2 processors continued to take a heavy toll on production volume and mix through the first eight weeks of 1999 as earlier material worked through the manufacturing process," the company said.

The situation improved last month, however, and the company expects to meet its goal of shipping 20 million to 25 million units for the whole of 1999.

"Based on March production results and the planned production mix of AMD-K6-2 and AMD K6-III processors, and initial shipments of AMD-K7 processors scheduled for June," the company anticipates that average selling prices for K6-2 processors will improve in the current quarter.

The chip company is scheduled to announce its actual first-quarter results on April 14.

Last month AMD announced that it expected to report a significant loss for the first quarter and that it planned to lay off 300 workers as part of a cost-cutting restructuring.

The company issued its first warning about a first-quarter loss in February. It did not provide any preliminary revenue estimates until this announcement.

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Elinor Mills

PC World
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