The flash is out of the pan.
Blaming falling prices for the flash memory, microprocessor maker
Advanced Micro Devices (AMD Quote - Cramer on AMD - Stock Picks) warned Thursday that its third-quarter results will sink into the red.
As it said it would do last week, AMD reported that earnings in the second quarter fell to 5 cents a share, an 86% decline from the first quarter and slightly better than sharply reduced analyst expectations. But the real news was to be found in the gloomy outlook the company offered for its third quarter. AMD said that it expects to post an operating loss in that period, in which sales would decline 10% to 15% from their level in the second quarter.
Downer
AMD shares' July plunge |
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AMD shares, which plunged last week on the company's warning, were unchanged in after-hours trading. They last changed hands on
Island at $22.7 after having gained 7% during the regular session.
Down, Down
AMD attributed the earnings decline to pressure on microprocessor prices and flash memory, which is long-term memory used in cell phones and personal digital assistants. Flash sales could be down as much 30% in the third quarter, Hector Ruiz, president and chief operating officer, said during the conference call following AMD's earnings release. And they'll certainly be down as much as in the second quarter, he said.
Seasonal trends in the fourth quarter that will drive renewed flash growth include more cell phone and personal digital assistants sales. Those items traditionally sell more in the fourth quarter. That, along with stronger seasonal PC sales, should boost revenues in the fourth quarter, the company said, allowing it to return to the black then.
Maybe so. Right now, things look tough. Memory sales fell 23% in the second quarter from the first quarter, coming in at $316 million, down from the prior period's $411 million. Microprocessor sales totaled $558 million, down 11% from the second quarter's $661 million. Meanwhile, revenues from other integrated circuit products fell 32%, while its foundry service revenue dropped 29%.
AMD said during its conference call that it expects to reduce capital equipment spending in 2001 to $900 million from the $1 billion it has said it would spend.
Sumo Wrestling
AMD and larger competitor
Intel (INTC Quote - Cramer on INTC - Stock Picks) have been locked in a price war since early this year. Intel has been trying to push sales of its newest microprocessor, the
Pentium 4, which got off to a slow start. One of Intel's most significant price-cuts occurred in April when Intel introduced its then fastest microprocessor, the 1.7 gigahertz Pentium 4, for about half what it normally charges. That competes against AMD's high-end line, the
Athlon. AMD's average selling prices for microprocessors lost about 17% in the second quarter from the previous quarter, falling to a mere $75. But even if ASPs are flat -- or even if they worsen, a more likely scenario -- AMD insists that it hasn't given up any market share to Intel. "We're not going to be pushed out of the ring by a sumo wrestler," AMD CEO Jerry Sanders said during the call.
Pricing for both flash memory and microprocessors have suffered because of a cycle of oversupply and weak demand. That has led to swelling inventories in flash products and microprocessors, particularly as end markets for cell phones and PCs have also weakened.
Sanders said Intel will be helped in the second-half by increased production of its new chip for mobile personal computers. That's one of the strongest PC markets out there, and Sanders aims to gain 50% of the market by year-end.
AMD may be heading into its worst quarter ever, but Sanders' confidence certainly isn't.
Caroline Humer
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