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ATI Tech Outlook Sends Shares Higher

Investors ignore a swing to a fourth-quarter loss.

As expected,

ATI Technologies'


fourth quarter was a bloodbath. But the graphics chipmaker predicted better times ahead.

"We are entering fiscal 2006 with new products and an intense focus on operational and financial performance," said David Orton, the company's CEO, in a statement. "Our new products and operational programs position us well for the future."

Investors bought into the optimistic outlook, bidding the company's stock up as much as 11% in early trading.

In the quarter ended Aug. 31, ATI lost $103.5 million, or 41 cents a share, on sales of $470.2 million. Those figures were well off the year-earlier quarter, when the company earned $61.2 million, or 24 cents a share, on $572.2 million in sales.

The quarter included a previously announced writedown of inventory, which totaled $67 million, and $11.2 million of stock-based compensation expenses.

On average, analysts surveyed by Thomson First Call were expecting the company to lose 30 cents a share on sales of $471.36 million in the quarter, but it's unclear whether analysts were including or excluding the inventory or stock compensation charges. Excluding items, ATI Tech said it lost 12 cents a share.

The company

issued an earnings warning in August; its new guidance implied a GAAP loss of $100 million or more on sales ranging from $465 million to $480 million. Its updated bottom- and top-line targets were both far below previous analyst estimates and its own prior outlook.

Setting aside the company's crummy fourth quarter, it did offer investors a better-than-expected outlook for its current period. ATI predicted sales would increase 15% sequentially from the first quarter to about $541 million. And it forecast that its gross margin would jump back to about 29% of sales from 9% in the just-completed period. Operating expenses, the company said, would rise about 2% to 3% from the fourth quarter, excluding stock-based compensation charges.

Assuming that the company's interest income and expense and that its share count remains about the same, the guidance implies that it will earn about 3 cents a share, pro forma, in the current quarter. The Street had predicted the company would earn a penny a share on sales of $534.8 million in the current quarter.

Still, the outlook again implies a marked deterioration from prior-year results. In the first quarter last year, ATI earned $63.7 million, or 25 cents a share, on $613.9 million in sales.

Despite that, investors focused on the positive. In recent trading, ATI shares were up 94 cents, or 7%, to $14.20. Earlier in the session, the company's stock rose as much as $1.48, or 11%, to $14.74.