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AMD Still Bleeding

By Alexei Oreskovic
TheStreet.com Staff Reporter
1/23/2007 5:00 PM EST

http://www.thestreet.com/_yahoo/newsanalysis/techsemis/10334272.html?cm_ven=YAHOO&cm_cat=FRE...

Advanced Micro Devices (AMD - commentary - Cramer's Take - Rating) swung to a loss in the fourth quarter because of acquisition-related charges and a continuing price war, which crushed the chipmaker's profit margins.
The Sunnyvale, Calif., chipmaker said Tuesday that it had a net loss of $574 million, or $1.08 a share, in the fourth quarter.

AMD attributed $1.04 of the loss to its recent acquisition of graphics chipmaker ATI, meaning that AMD's EPS excluding the charges were -0.4 cents.

That's well below the average analyst expectation, which called for AMD to earn 10 cents a share.

AMD's sales in the fourth quarter were more or less in line with analysts' dampened expectations. The company said sales in the fourth quarter were $1.77 billion, compared with the average analyst expectation of $1.73 billion.

But AMD's outlook for the current quarter was soft, with the company projecting sales between $1.6 billion and $1.7 billion, vs. analyst expectations of $1.81 billion.

Shares of AMD slipped 6 cents to $17.45 in extended trading.

In a statement, AMD CFO Robert Rivet said the company believed that it had gained market share in the fourth quarter "by continuing to execute against our customer acquisition strategy and our product, technology and manufacturing plans."

The price of the market share gains are being felt in AMD's gross margins however, which tumbled to 40% in the fourth quarter; at this time last year, AMD's gross margin was 57%.

AMD has been locked in a price war with Intel (INTC - commentary - Cramer's Take - Rating), which controls a dominant share of the PC microprocessor market, for several months.
Last week week Intel reported better-than-expected, fourth-quarter financial results and said its unit shipments and its average selling prices increased. But Intel projected stagnant gross margins for 2007, raising fears that the price war between Intel and AMD was not about to let up.

AMD warned the Street earlier this month that it's fourth-quarter results would fall short of its initial expectations due to "significantly lower" microprocessor prices.

AMD's stock, which plunged more than 10% after the warning, has yet to recover from the news, finishing Tuesday's regular session at $17.51, just slightly above its 52-week low.

AMD said total unit shipments surged 26% year over year and 19% sequentially, with mobile microprocessors leading the way with 41% sequential growth.

Shipments of server chips were flat sequentially with average selling prices down significantly, AMD said.