AMD Beats Estimates in a Lousy Quarter

The chipmaker posted a 20% decrease in revenue from the fourth quarter.
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Advanced Micro Devices

(AMD) - Get Report

reported that it lost 88 cents a share for its first quarter, beating Wall Street's oft-lowered estimates. Revenue rose 17% from a year ago to $632 million.

The latest

First Call

consensus of estimates, posted Wednesday, called for a loss of 92 cents a share. On Tuesday the consensus was for a loss of 82 cents. Excluding charges, the first-quarter loss was 81 cents a share.

The chipmaker posted a 20% drop in revenue from fourth-quarter levels.

"The best thing that can be said about the first quarter is that it's over," CEO W.J. Sanders III said in a press release.

The following was posted at 9:12 a.m. EDT.

SAN FRANCISCO -- For a sad story, tune into

Advanced Micro Devices'

(AMD) - Get Report

conference call Wednesday afternoon as the company discusses first-quarter results.

AMD's earnings will surely be a tale almost too painful to report. Two weeks ago, the 21-analyst

First Call

forecast called for a loss of 56 cents a share in the quarter, compared with the year-earlier loss of 39 cents. But that was before AMD

warned last week of further weakness -- its second preannouncement for the quarter. Now the consensus stands at a loss of 82 cents a share. AMD's stock closed Tuesday at 15, down 1/16 for the day and down 54% from the 52-week high of 33, which it hit Jan. 12.

Here is a PC chipmaker that presents the only real competition to chip behemoth

Intel

(INTC) - Get Report

. (

National Semiconductor's

(NSM)

Cyrix

division has its own problems.) Just when AMD's dream of pulling the rug from under Intel is within reach, things are starting to fall apart.

AMD, which turns 30 this year, is for the first time set to come out with a chip, called the

K-7

, that could outperform Intel's

Pentium III

. The problem is, AMD just can't get enough high-speed chips off its assembly line. And it keeps losing money and burning through its limited pool of cash. Meanwhile, Intel is forcing ever more drastic price cuts in its chips.

Even AMD bull Charles Boucher, an analyst with

Donaldson Lufkin & Jenrette

(on whose board AMD CEO W.J. "Jerry" Sanders sits), is talking about the K-7 chip as AMD's last gasp for survival.

"You have to fund the development of a new processor at some point, and to do that you need $400 million to $500 million," he says. "If you are not making money, how do you fund that? AMD would have difficulty issuing any kind of public debt now. They have got to bring a chip to market they can generate profits with."

Six months ago, AMD surprised analysts with a

1-cent profit that seemed to signify its troubles were over. Ah, fond memories.

Boucher was already predicting the company would lose 71 cents a share for the quarter before the second preannouncement, and he has since widened his loss estimate to $1.16. And

Needham & Co.'s

Tad LaFountain, currently the only analyst with a strong buy rating on the stock, now expects AMD to show a loss of $1.34 a share.

Finding good news on the call is going to be tough. First, average selling price is generally the key measure, with $100 per chip being the benchmark. But in the fourth quarter, the average selling price fell to $89 from $100 in the third quarter, and by the company's own admission, manufacturing problems did not improve in the first quarter.

Second, Sanders and his spokespeople have a credibility problem. They keep issuing famous last words. During the January conference call when Sanders talked of manufacturing problems, he assured analysts: "We've got that problem behind us." Then in mid-March when the company issued its first preannouncement, spokesman Scott Allen said the company had "seen the silicon" out of the plants and was back on track.

"Shareholders' tolerance has to be wearing wafer-thin at this point," Boucher says.

Boucher and LaFountain both say they look forward to word from Sanders that the K-7 is on track. Boucher hopes to hear it is ahead of schedule. But still, he gives the K-7 only a "slightly better" than 50/50 chance of coming out on time.

Maybe he should wait to see the silicon for himself.