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AMD Profits at Intel's Expense

The firm rebounds from a year-earlier loss after gaining market share. But it warns on sales.

April 13, 2006|Terril Yue Jones | Times Staff Writer

Continuing its assault on archrival Intel Corp., computer chip maker Advanced Micro Devices Inc. said Wednesday that it had swung to a profit in the first quarter on higher sales.

AMD's net income of $184.5 million, or 38 cents a share, in the period ended March 26 marked the Sunnyvale, Calif.-based company's best quarterly performance in more than five years as its processors won market share away from Intel, the world's largest semiconductor manufacturer.

In the same quarter last year, AMD lost $17.4 million, or 4 cents a share. Revenue rose 9% to $1.33 billion. Excluding the memory business AMD spun off last year, sales soared 70%.

Much of those gains have come at the expense of Intel, which reports its first-quarter earnings next week. The company warned last month that it would miss the sales target amid slipping demand.

"They've hit Intel in its breadbasket," said Rick Whittington, an analyst with investment bank Caris & Co. "It does not bode well for Intel for the rest of this year. AMD has the preferred solution across the board. Their biggest success has been in servers, and pretty soon I think we'll be seeing them as a strong penetrator of Intel's notebook stronghold."

AMD chips are seen as having a technological edge by running at lower temperatures, a crucial function with increasingly powerful processors crammed into small spaces.

But AMD warned that its second-quarter sales would probably be flat or down from the first quarter, although up about 65% from a year earlier, AMD's chief financial officer, Robert Rivet, said in an conference call with financial analysts. They had expected AMD sales to be up slightly to about $1.35 billion.

That sent AMD shares, which had gained $1.07 to $35.42, down 73 cents in after-hours trading.

AMD has crossed the 20% mark for global market share of personal computers and so-called x86 servers, the largest category of server computers, said Shane Rau, a chip analyst with technology market researcher IDC.

"What will be telltale will be the third quarter. That's when the new products from both companies will start to appear in systems built for back-to-school and the holiday buying season," Rau said. "I think September and October will be the key months, then we'll see if AMD will be able to lock in its share gains."

Caris' Whittington said he was "expecting a succession of down quarters for Intel."

"It could be September or December before they flatten out and next year could be a difficult year for them," he said.

AMD Chief Executive Hector Ruiz said the company this quarter would start selling its dual-core, 64-bit notebook processors, which process twice as much data at a time as the 32-bit processors more common today. That is earlier than Intel's plans to bring similar chips to market.

Ruiz said AMD would also branch into new niches.

"It is important for us to win in mobile," he said. "We have grown considerably in the last few quarters in the mobile segment."

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