AMD Loss Is Less Than Expected, but It's Still a Loss

AMD conceded that there is still 'significant uncertainty' in demand for Athlon processors, the product on which the company has staked its future.
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Advanced Micro Devices

(AMD) - Get Report

reported a huge third-quarter loss late Wednesday afternoon, but it was nowhere near as bad as Wall Street's dire predictions.

The computer chipmaker said it exceeded analysts' expectations as a result of revved-up sales of flash memory cards and its new line of Athlon processors. The company has staked its future on the high-speed processors, which it is using to mount a head-on assault against rival

Intel

(INTC) - Get Report

.

"We met our goal, albeit barely" for Athlon shipments, said Jerry Sanders, AMD chairman and CEO, speaking to analysts and reporters in a conference call. Sanders predicted the company would ship 1 million or more Athlon chips by the end of the year, but he conceded that there is "significant uncertainty" in demand for the product.

For the quarter ended Sept. 26, AMD posted a net loss of $105.5 million, or 72 cents a diluted share, compared with net income of $1 million, or 1 cent a share, in the 1998 third quarter. Before the announcement, 18 analysts surveyed by

First Call/Thomson Financial

were expecting an average loss of 97 cents a share. Sales fell 3.5% from a year earlier, to $662.2 million.

But beating an expected gigantic loss with merely a large loss is still a dubious accomplishment, one analyst argued.

"Who cares?" said Drew Peck, an analyst for

SG Cowen

who has a hold rating on AMD. (SG Cowen has not done underwriting for AMD.) "When a company is losing this much money, it's a little specious to split hairs and try to figure out whether they're meeting or beating the Street's expectations."

AMD continued to have problems delivering its new products in the latest quarter. "Limited AMD Athlon motherboard availability during the third quarter was exacerbated by the Taiwan earthquake," the company said in a news release. The aftermath of the earthquake on Sept. 21 will continue to limit Athlon sales in the next quarter, AMD said.

The company also announced it would jettison part of its communications business.

Wall Street had become increasingly pessimistic about AMD's prospects as the quarter wore on. The loss projected by analysts polled by

Zacks Investment Research

widened to 98 cents a share from 60 cents in July.

But that was calculated, Peck argued. "The company strategy is to lead investors to expect the worst and capitalize on the surprise," he said.

The Street apparently sensed that AMD's financial results would not be so bad. The company's stock climbed 13/16, closing at 19 7/16 Wednesday ahead of the announcement. The company's stock did not trade after the markets closed, according to

Instinet

.

During the quarter, analysts' estimates seemed to get worse even around ostensibly good news. By the time the company announced that new 550- to 650-megahertz Athlon processors were available on Aug. 9, analysts were expecting a loss of 86 cents a share.

The stock's price fell, too, to below 18 last week from a monthly high of 24 3/4 on Sept. 8.

But investors this month may have been paying close attention to indicators for the next quarter, like the Taiwan earthquake, which was expected to hurt production. That quake came a day after

The Wall Street Journal

reported in its online edition that that

Gateway

(GTW)

would stop buying AMD chips.