AMD’s Gains Continue

Riding an increase among the three key market segments, desktop, mobile and servers, AMD reported today that its year-over-year sales increased in the first quarter of 2006 by 71 percent. The biggest part of the increase was on the server side where AMD says sales of its Opteron microprocessor had triple digit growth from a year ago.

AMD also reported a bump up in its gross margins to 58.5 percent versus 57.3 percent in the last quarter of 2005. Total sales were $1.33 billion with a net income of $185 million or $0.38 per share for AMD’s quarter which ended March 26.

“Overall we believe we took dollar share across the desktop, mobile and server markets [from Intel],” said Robert Rivet, AMD’s chief financial officer. Details of Intel’s recent sales results and forecasts are likely to emerge April 19 when the chip giant reports first quarter earnings.

Intel still dominates the microprocessor market with over a 75 percent share, but AMD’s been gaining steadily, reporting eleven consecutive quarters of over 20 percent sales growth.

Unlike mobile and desktops, where AMD increased the average selling price of its chips, the company conceded in a conference call today with analysts that it deliberately lowered Opteron prices in the past quarter to gain market share.

“We had a pricing strategy with Opteron that was planned and it worked,” said AMD’s VP of marketing Henri Richard. “We saw a sharp increase in units sales from February on.” Richard added that AMD is on track to meet its goal of gaining thirty percent of the microprocessor market in the next three to five years.

Mercury Research analyst Dean McCarron said in some cases AMD’s server prices were above Intel’s but are now more in line. “Both Intel and AMD have very aggressive pricing but there are so many products and configurations it’s hard to match them up directly,” McCarron told McCarron said he’s particularly impressed with AMD’s gains on the server side. “It’s the most difficult part of the market because customers require extreme reliability and multiyear commitments. Basically if you can win in servers you can get everything else.”

But the one major server maker AMD doesn’t have as a customer is Dell. There has been rampant speculation AMD may soon gain Dell as a customer though that wasn’t discussed in today’s earnings call. AMD CEO Hector Ruiz did point to his company’s growing customer reach in the past quarter. In addition to HP, IBM and Sun, Ruiz noted that AMD has expanded its relationship with Lenovo which in turn is ramping up its U.S. distribution. AMD did gain Dell indirectly when the PC maker announced last month its purchase of high end gaming PC maker Alienware which uses both AMD and Intel processors.

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