Profit Margins Erode Advanced Micro Devices

Updated from 5:00 p.m. EST

Advanced Micro Devices(AMD Quote) shares sank to a new 52-week low in extended trading after the chipmaker revealed ravaged profit margins that reflect a brutal price war and hefty acquisition-related charges.

Though AMD said it gained market share in the quarter, the average selling price of its lucrative server processors declined significantly, pushing the company into the red.

AMD CEO Hector Ruiz acknowledged that the impact of a price rivalry with Intel(INTC Quote) is turning out to be greater than the company initially planned.

"Pricing is incredibly challenging -- we expect it to be for all of the year, but in particular the first half of the year," Ruiz said in a postearnings conference call.

But despite the stress that the price reductions are exerting on its financial performance, AMD's top brass said the company would press on with its plan to take market share from Intel, the dominant player in the PC microprocessor market.

AMD management said the transition to a new generation of chip-manufacturing technology as well as a "maniacal" focus on cost control will lift gross margins back to the roughly 50% target level in 2007.

That would mark a significant improvement from the 40% gross margin that AMD posted in the fourth quarter.

Investors bid down AMD's stock 4.1%, or 72 cents, to $16.79 in extended trading.