Updated from 12:46 p.m. EDTAdvanced Micro Devices ( AMD) was down over 20% after disappointing investors with weak preliminary fourth-quarter revenue figures, as accumulating negative news began to drag down an already-weary sector. AMD's announcement followed a warning after the bell Monday from STMicroelectronics ( STM), Europe's second-largest chipmaker. Both of these announcements precede financial results from Intel ( INTC), the world's largest chipmaker and AMD's prime competitor in the market for computer microprocessors and flash memory. Intel will post its results after Tuesday's closing bell. Amid the dark clouds of AMD and STMicro, Intel shares were recently down 36 cents, or 1.6%, to $22.52. AMD was recently down $4.66, or 23.1%, to $15.47; STMicro was off 79 cents, or 4.3%, to $17.77; and the Philadelphia Semiconductor Index was down 2.3% to 397.05, suffering its first drop below 400 since late October. "I think people are really bracing themselves for the first quarter," said Scott Curtis, managing director of trading for Kinetics, a New York-based money management firm, noting that there hasn't been much negative news during the past couple of weeks. "Semis topped at the beginning of December, so giving back 5% to 10% isn't going to be the end of the world." Ten percent is exactly what the chip index has given back since it completed a three-month run higher in early December. As for AMD, Curtis said the company has been outperforming the overall sector for the last half of the year. "This is a stock that people fell in love with for quite a while," he said. Indeed, the stock hit a three-year high back in December at $24.85. But with Tuesday's move, shares are down 36% since then. AMD said overall sales will increase "slightly" from the $1.24 billion reported in its third quarter. Analysts had expected sales of $1.31 billion, an increase of 5.8%. Operating income will be positive, but "down significantly" from the third quarter.
The biggest hit to AMD's results came from its flash memory operations. AMD expected sales to be flat to up, but sales fell and the unit lost money amid a "competitive and challenging" market. AMD will announce more specific details on Jan. 18. "It's tough to compete with a 500-pound gorilla, especially when you have a war on two fronts -- both processors and flash memory," said analyst Krishna Shankar with JMP Securities. "I thought AMD's strong processor business would outweigh weakness in flash, but that obviously was not the case," he said. Intel and Samsung have been very aggressive in the flash market in recent months, Shankar said. Samsung is the world's second-largest chipmaker. The South Korean-based company will report financial results Friday.