ATI Tech Takes Down Sales Estimates

Graphics chipmaker ATI Technologies ( ATYT) warned Wednesday that sales for its fourth quarter will fall far short of analysts' estimates and the company's own prior guidance.

The company attributed the shortfall to lower-than-expected sales of its integrated chipsets for Intel ( INTC) processors and of its handheld graphics chips. ATI linked the disappointing Intel chipset sales to its recent decision to be acquired by AMD ( AMD), Intel's archrival.

"While we anticipated a decline in future Intel-based chipset business following the announcement of the acquisition agreement with AMD, the decrease occurred much sooner than we expected," said ATI CEO Dave Orton in a statement.

The company attributed the poor handheld sales to a "supply chain adjustment" by one of the company's major customers. Although the company did not name that customer, ATI's regulatory filings indicate that the bulk of its handheld business is with Motorola ( MOT).

The warning marked the second time ATI has cautioned analysts to reduce their expectations for its fourth quarter, which ended Aug. 31. Following the news, the company's stock was off 30 cents, or 1.4%, to $21.10 in recent after-hours trading. The company's stock was off as much as 3% earlier in after-hours trading.

The company's stock might have traded lower, but the AMD bid likely is providing a floor for the stock. At current prices, AMD is offering about $22 a share in cash and stock for ATI.

ATI now expects to post sales of about $520 million for the just-completed period. In contrast, back in June, the company forecast that sales for the quarter would range from $620 million to $660 million.

The company did not update its expense guidance. While ATI didn't forecast its bottom line in June, its outlook on expenses implied that earnings would range from 12 cents to 22 cents a share.

Prior to Wednesday's warning, analysts were expecting ATI to earn 16 cents a share in its fourth quarter, excluding stock-options costs, on $642.1 million in sales, according to Thomson First Call.

The sell side had already taken down their targets following the company's last earnings report. At that time, they were expecting the company to earn 20 cents a share on $694 million in sales.

ATI shares closed regular trading off 38 cents, or 1.7%, to $21.40.

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