SAN FRANCISCO -- It's amazing that even after dishing out a dire preannouncement last month, Advanced Micro Devices (AMD) - Get Report can still manage to pull even more bad news out of its hat.

On a conference call Wednesday to report second-quarter results, chairman and CEO Jerry Sanders announced the resignation of Atiq Raza -- AMD's president, chief operating officer and chief technical officer -- for "personal reasons." Raza is the man largely credited for bringing the K6 microprocessor to the company.

The announcement shocked investors who regularly trade news on message boards. While

Silicon Investor

had 11 postings on its AMD board in the hour prior to the announcement, 44 messages were posted in the hour immediately after. One wrote only this: "stunned silence."

"AMD's return to profitability depends entirely on the success of the Athlon microprocessor." -- AMD CEO Jerry Sanders.

BancBoston Robertson Stephens

analyst Dan Niles says the resignation came as news to him as well. "That was definitely surprising, and I know Atiq pretty well," he says. "I have no knowledge on why he is leaving."

The news comes at a time when

Intel

(INTC) - Get Report

is hurting AMD so badly with price cuts on the low end of the PC chip market that Sanders has all but given up on the K6 family of processors. Raza is also leaving just as the company is shipping to customers its one hope for glory -- the new

Athlon

processor, also known as the K7, designed for high-end PCs. Many in the industry say the Athlon chip is superior in design to anything Intel currently produces.

Sanders said the company is shipping "hundreds of thousands" of the Athlon this quarter, which will sell at prices that range from $323 for a 500 megahertz chip to $699 for the 600 MHz version. If it can sell as many as it can produce, the chip promises to be a cash cow.

The company sold 3.7 million K6 chips in the second quarter at an average selling price of $67 to produce microprocessor revenue of about $248 million. This quarter, the K6 will carry an ASP in the $50 range, Sanders predicted. To generate that much money with ASPs of $400, the company would need to sell only 620,000 Athlon chips. On the call, Sanders said that AMD could easily produce over a million Athlon chips during the fourth quarter.

Sanders has

boasted in the past about the company's ability to produce chips, then failed to deliver on promised productivity. And even if AMD can shoot super-fast Athlon chips out of its plant, the question is how fast they will sell. Even Sanders, who has not hesitated in the past to make warm and fuzzy predictions, wouldn't venture to predict demand levels.

"It is just a big unknown," Sanders said.

It's all or nothing now. "We won't fight a price war we can't win," Sanders said. "AMD's return to profitability depends entirely on the success of the Athlon microprocessor in the marketplace and the revenues it can generate."

For the company to be profitable, it needs to generate $500 million in sales each quarter, and that won't happen, Sanders admitted, until early 2000 at the earliest.

So what can AMD investors hold on to? Well, the second-quarter loss of $162 million was narrower than the loss of $200 million Sanders predicted on June 23. And at a loss of $1.10 per share, it came in 16 cents better than the $1.26-per-share loss predicted by the

First Call

consensus.

Niles also points out that Raza's resignation came after the Athlon chip's debut, and Raza said he would continue to work with the company in some undefined capacity. "Atiq owns a lot of the company," he notes. "I'm sure he wants the stock to do well." The resignation came after the Athlon chip was out and already shipping.

Niles says he's waiting to see how well the Athlon chip does. "I think the K7 will be good for the company," he says.

Still, Niles has no plans to change his hold rating on the company any time soon. (BancBoston has no underwriting relationship with AMD.)