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AMD reports a loss as sales fall

The chip maker points to a charge related to an acquisition. Analysts question its strategy.

January 24, 2007|Michelle Quinn | Times Staff Writer

Advanced Micro Devices Inc. reported Tuesday that it had swung to a fourth-quarter loss on slower sales, hurt by a costly acquisition and its fierce battle to grab market share from dominant chip maker Intel Corp.

The news, which came after the stock market closed, sent shares of Sunnyvale, Calif.-based AMD tumbling more than 4% in after-hours trading.

AMD reported a net loss of $574 million, or $1.08 a share, in contrast to a profit of $96 million, or 21 cents, a year earlier. Revenue fell 3.8% to $1.77 billion.

This month AMD had warned investors that it would not meet expectations because it had cut prices on its chips. Analysts were expecting the company to earn, on average, 10 cents a share on $1.74 billion in revenue before charges, according to a Thomson Financial survey.

On Tuesday, the company blamed much of its loss on a $550-million charge related to its $5.4-billion purchase last year of ATI Technologies Inc., a Markham, Canada-based graphics chip maker.

Some industry analysts, however, raised concerns about AMD's strategy for gaining market share in microprocessor sales. About three years ago, the company expanded its mission from supplying computer chips in niche markets to attacking Intel's dominance by unleashing a brutal price war.

AMD has made inroads against Santa Clara-based Intel. In the U.S. computer notebook segment, AMD had a 33% share in the fourth quarter of 2006, up from 22% in 2004's fourth quarter, according to Current Analysis, a La Jolla-based market research firm. Intel's share dropped to 66% from 76% in the same period.

Recently, each company has entered territory long dominated by the other. In July, AMD struck a deal with Dell Inc., and on Monday, Intel announced a deal with Sun Microsystems Inc.

But even as AMD shipped a record number of microprocessors, particularly for mobile products, it has been slashing prices, which contributed to the fourth-quarter sales drop.

AMD is "caving to customer demands," said Doug Freedman, managing director at American Technology Research. "They are doing nothing but giving them away."

In a conference call with analysts, company executives said they expected to better control costs. They also expect the launch next month of Microsoft's Vista operating system to be a boost to the microprocessor business as consumers upgrade their computers.

AMD offered limited earnings guidance, saying it expected revenue in the range of $1.6 billion to $1.7 billion in the first quarter.


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