AMD Logs Off Low-Cost Computers

The chipmaker exits a money-losing operation.
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Advanced Micro Devices

(AMD) - Get Report

has quietly pulled the plug on the low-cost computers it has sold to developing nations for the past couple of years.

The Sunnyvale, Calif., chipmaker said it ceased manufacturing the money-losing Personal Internet Communicator, or PIC, in the third quarter of 2006. News of the PIC's demise was tucked away in the chipmaker's third-quarter financial report filed with the

SEC

last week.

The PIC is a low-cost, rugged-looking PC designed for people in developing nations like China, India and Brazil that AMD introduced in 2004. The Internet-ready machines feature an AMD Geode processor, a slimmed-down version of

Microsoft

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Windows operating system, a hard drive, keyboard and mouse, but no monitor.

In a departure from AMD's traditional business model of simply selling chips, the company contracted with

Solectron

(SLR)

to have the systems manufactured, and sold the PICs through partnerships with local telephone, cable or internet service providers in different regions.

The PIC is part of AMD's effort to connect 50% of the world's population to the Internet by 2015 -- dubbed 50x15.

Intel

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, the world's No.1 chipmaker, is also taking steps to spread its technology into developing nations through its so-called

World Ahead program. The company has plans to sell a sub-$400 PC in countries like Mexico and Turkey through partnerships with local service providers.

Laudable as the projects may be, AMD's experience with the PIC suggests the business model may need to be tweaked.

According to AMD's SEC filing, revenue from sales of PIC products has not been material and the business division that comprises the PIC had an operating loss of $13 million in the third quarter.

The group had a $32 million operating loss in the first nine months of 2006, due to a write-off of PIC inventory, returns of previously sold PIC products and "a $10 million write-off of prepaid assets related to PIC products in the third quarter of 2006 due to our decision to no longer manufacture PIC products."

AMD spokesperson Eric DeRitis stressed that the company was not backing away from its 50x15 initiative to connect the developing world to the Internet.

"50x15 is not about a single device, it's about an approach to digital inclusion," DeRitis said, noting that in the next few months AMD would be unveiling a new product that incorporates the lessons learned from the PIC experience.

Shares of AMD were off 1.5%, or 32 cents, at $20.88 in midday trading Tuesday.