Profit Margins Erode Advanced Micro Devices

In its earnings report Tuesday, AMD said shipments of its server processors were sequentially flat in the fourth quarter, while average selling prices declined "significantly."

Part of the problem is that AMD is fielding a stale lineup of chips and is not planning to introduce its new quad-core Barcelona processor until the summer of 2007.

But AMD is still managing to hold its own with its current portfolio of desktop and notebook chips.

The company said it believed it gained unit market share in both categories in the fourth quarter. ASPs for mobile chips increased slightly, while desktop prices decreased slightly during the quarter.

Overall unit shipments in the fourth quarter were up 19% sequentially, while mobile shipments surged 41%.

"We've been on a customer acquisition strategy for some time, but we're not through," said Ruiz. Customers around the world want to increase their share of business with AMD, he said.

To meet that demand, AMD plans to invest $2.5 billion in capital expenditures in 2007, upgrading some of its manufacturing facilities to handle larger 300-millimeter silicon wafers and churn out chips with 65-nanometer circuitry.

Smaller circuitry allows a company to pack more transistors per chip, reducing costs. Intel has been producing the bulk of its chip output at 65 nanometers since June and is already racing to move to the next generation of 45-nanometer chips.

And with Microsoft's(MSFT) new Vista operating system slated to begin shipping this month, AMD management said the overall PC market looked encouraging in 2007.

"We truly believe that Vista will provide an impetus to unit demand in 2007 and beyond," said Ruiz.

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