Advanced Micro Devices Inc. posted a surprisingly big quarterly loss on Thursday, hit by falling prices, but its shares rose after the computer chip maker said it was exploring ways to raise capital.
The toll extracted by a price war with market leader Intel Corp. was evident in AMD's gross margins, which fell to 31 percent from 40 percent in the previous quarter and 59 percent a year earlier.
"The loss was bigger than we all expected," said JoAnne Feeney, managing director at FTN Midwest Securities. "What we're seeing here is a much more severe pricing environment than what even the most concerned had anticipated."
AMD, the No. 2 player in the $40 billion PC processor industry, said its net loss for the first quarter was $611 million, or $1.11 per share, compared with a profit of $184.5 million, or 38 cents per share, a year earlier.
Revenue fell 7.4 percent to $1.23 billion, in line with expectations after AMD warned last week that revenue would be about 20 percent less than earlier forecasts.
Excluding acquisition-related charges, AMD made a loss per share of 90 cents, much larger than the average Wall Street consensus of 47 cents, according to Reuters Estimates.
"We're not happy with having to miss the damn numbers," Chief Executive Hector Ruiz told analysts on a conference call, adding it was the first time in 14 quarters the company failed to gain market share.
After losing significant market share in 2006, Intel struck back in the first quarter of 2007, controlling 80.2 percent of global microprocessor revenue during the period, up 4.5 percentage points from 75.7 percent in the fourth quarter of 2006, according to a newly revised estimate from iSuppli Corp.
Meanwhile, AMD's portion of microprocessor revenue fell to 11.1 percent in the first quarter, down 4.6 percentage points from the fourth quarter, the research firm said.
"PERFECT STORM"
The call was marked by much hand wringing, with executives calling the quarter "unacceptable", "a major setback", "a perfect storm" and "a terrible start".
AMD shares initially dropped 9 percent in extended trading but recovered and gained another 4.3 percent to $14.90 after executives said the company was evaluating financing options and was open to a private equity deal.
"We have absolutely no prejudice or bias toward the source of capital as long as it makes sense for us. We are completely open toward any of those opportunities," Ruiz said when asked if AMD would consider private equity.
Stifel Nicolaus analyst Cody Acree voiced skepticism about the possibility of an outright buyout by private equity, because AMD is involved in a very capital-intensive business dominated by an aggressive competitor.
"That's not to say it won't happen or couldn't happen, because private equity is a little crowded right now, so maybe they have to go out of their sweet spot," Acree said.
AMD said it expected second-quarter revenue to be flat to slightly up from the first quarter. The average analyst estimate is for second-quarter revenue of $1.24 billion.
"The key things for investors is whether AMD is still attached to market-share goals or whether they are more focused on profitability," Feeney said.
AMD, which had nearly 25 percent of the market for the x86 chips that run most computers, has said it planned to increase that share to more than 30 percent.
But the company's recent difficulties have called that goal into question, and AMD executives said last week during the revenue warning that they would cut capital spending plans by $500 million, or one-fifth.
AMD shares have fallen 55 percent over the past year, compared with a rise in Intel of 11 percent. Intel raised its margin outlook earlier this week after reporting a 17 percent rise in quarterly profit, helped by a tax gain.
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