RealTime IT News

Price War Concerns Blunt AMD's Earnings Report

AMD today reported a net profit of $134 million, or $0.27 per share, on sales of $1.33 billion for the third quarter of 2006. In the same quarter a year ago, AMD  reported profits of $129 million on sales of $1.52 billion.

The Sunnyvale, Calif.-based chip maker's results improved 17 percent sequentially; last quarter's profits were $88.8 million on $1.22 billion in sales.

But while the company's sales were up 32 percent from last year, after factoring out the spinoff of its Flash memory division Spansion and its earnings beat estimates, AMD's shares fell 10 percent on concern about falling margins.

Gross margins fell to 51.4 percent, down five percent from the previous quarter. AMD said it expects a "seasonally strong" fourth quarter and sales to "increase sequentially."

AMD President Dirk Meyer said AMD's results were "good, but we still think we could have done better." One area is desktop processor sales, which the company said were flat sequentially.

In addition to increased competition from Intel , CEO Hector Ruiz said that demand for mobile products was greater than AMD anticipated. On a conference call with analysts today, Ruiz said, "It was challenging to adjust our product mix in the quarter."

Meyer noted AMD is transitioning to a more efficient 65 nanometer manufacturing process that will allow it realize greater profit margin in the next and future quarters. Intel is already on 65nm and planning its transition to 45nm, which AMD is also planning for a bit later.

While conceding it's facing "a bit more competition" from Intel's "Woodcrest" dual-core Xeon 5100 server processors, Meyer said AMD continues to be most differentiated in the 4P (processor) category where it's had strong growth.

It was a good quarter for AMD on several fronts. It's newest partner Dell  unveiled AMD-powered Dimension desktops. The computer giant also plans to announce an AMD-based multi-processor server later this year.

IBM,  stepped up its commitment to Opteron with five new server platforms. Also, HP  and Lenovo announced desktop systems targeted at enterprise customers, a market segment currently dominated by Intel.

The company also announced a billion dollar merger with graphics hardware supplier ATI, which AMD said is progressing as planned.

But in underscoring its commitment to open competition, AMD's Chief Sales and Marketing Officer, Henri Richard, leaked a bit of news about a high-end PC gaming platform it will announce in a few weeks. "Our launch partners is [ATI competitor] Nvidia, and we're happy to have them."

AMD continues to pursue an antitrust action against Intel, though a judge recently scaled back the scope of the case to the U.S. instead of worldwide as AMD had hoped. The European Union, and courts in Korea and Japan have pursued antitrust actions against Intel.

The U.S. case is not slated to be heard until 2008.