Updated from July 20

Feeling the pressure of a price war, Advanced Micro Devices ( AMD) reported slumping microprocessor sales Thursday.

But there was some confusion as to whether the Sunnyvale, Calif.-based chipmaker turned in a better-than-expected profit, or missed Wall Street EPS estimates by as much as 4 cents a share.

Sales of $1.22 billion were in line with the reduced target that AMD released earlier this month, when it warned the Street that slowed mobile and desktop processor sales would result in a 9% sequential drop in revenue.

AMD said that it had $89 million in net income, or 18 cents a share, in the three months ended July 2. That's below the Thomson First Call average analyst estimate of 22 cents a share.

But the Thomson average contained a range of analyst estimates, with some running as high as 37 cents a share, leading investors to wonder whether the average contained outdated estimates that preceded AMD's warning.

According to news reports, the average analyst estimate as polled by Reuters called for AMD to earn 17 cents a share, resulting in a penny beat.

Whatever the case, it was a difficult quarter for the chipmaker, following several quarters of impressive performance.

Shares of AMD were off nearly 12% in early Friday trading, sinking $2.55 to $19.10.

AMD and rival Intel ( INTC) are both aggressively cutting prices to gain market share. On Wednesday, Intel reported that its second-quarter profit plunged 57% from the year-ago period.

AMD had initially projected second-quarter sales to be flat or down slightly from the $1.33 billion it generated in the first quarter.

AMD CFO Robert Rivet said the company was dissatisfied at not reaching its top-line target in the second quarter.

The company said its second-quarter sales were down primarily because of the "challenging pricing environment" for high-volume desktop processors.

Gross margin in the second quarter was 56.8%, compared with 58.5% in the first quarter. Total microprocessor unit shipments fell 4% sequentially, although company executives said this decline was in keeping with the seasonally slower second quarter of the year.

In some cases, AMD executives said the company chose to walk away from business opportunities rather than match Intel's price cuts.

"It's always been very clear that our goal is to make profitable growth," chief sales and marketing officer Henri Richard told analysts in a conference call after the release. "So we're going to take business that makes sense to our customers and to us."

According to AMD, second-quarter sales were still 58% higher than the $797 million that AMD reported in the year-ago period, though this comparison excludes the contribution of AMD's memory group, which it spun off in December.

Net income was up from the $11 million in the year-ago period.

Servers represented a bright spot for the company. Sales of AMD's Opteron processor jumped 26% sequentially, with AMD executives contending that the chip continued to grab market share in the second quarter and expressing confidence that Opteron would account for 30% of the server segment by the end of the year.

AMD executives said they expected the difficult pricing environment for desktop chips to continue into the third and fourth quarters of the year. Even so, the company projected an increase in third-quarter sales, thanks to rising prices for its server and laptop chips.

Analysts polled by Thomson First Call project that sales in the current quarter will increase to $1.34 billion, with EPS of 29 cents.

CEO Hector Ruiz told investors that he believes AMD will have a stronger-than-seasonal third quarter, although he said was still unclear what seasonal will be this year.

"Our customers are telling us that demand for our product is healthy," said Ruiz.

Last year, AMD grew its third-quarter sales 21% compared with the second quarter.

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