Price War Equals Sales Dip for AMD

Battered from a price war with Intel, particularly in sales of desktop
computer chips, AMD  missed its projected sales
numbers for the second quarter.

AMD’s gross margin dipped from 58.5 percent in the first quarter to 56.8 in the second quarter, which the company largely attributed to a lower average selling price for desktop processors. Revenues of $1.22 billion were pretty much in line with where the company warned they would be earlier this month.

Operating income for the Sunnyvale, Calif.-based chip maker was $102
million for the second quarter, up from $83 a year ago, but down from $259
million last quarter.

AMD’s primary competitor, Intel,  reported disappointing results yesterday.

“The competition is hurting both company’s bottom lines,” Roger Kay,
analyst with Endpoint Technologies Associates, told internetnews.com.
“Intel is competing like mad on price and that will effect AMD.”

AMD continues to do well on sales of its Opteron server chips, but Intel
has recently started to win back share on the desktop retail side, where AMD
had made huge gains.

“We feel very bullish on the sever side with 26 percent sequential growth
and continuing to gain share,” said AMD CEO Hector Ruiz in an earnings call
with analysts. “We might have held or even gained share on the desktop side
despite the challenging environment.”

Major research firms are expected to provide market share numbers later
this month, which would give a clearer picture of gains and losses on the
desktop side. AMD’s president Dirk Meyer said that in
some cases, AMD “walked away from business that didn’t make sense” where
Intel has been discounting excess inventory of its desktop chips.

Henri Richard, AMD’s VP of sales and marketing, claimed Intel is selling
its excess chips at prices in some areas AMD will not try and compete.
“We’re not going to chase [the very low end of the desktop line], which I
compare to lighting a cigarette in front of a gas leak.”

In yesterday’s earnings call, Intel said it had moved up the timetable for
its first
quad-core processor
from the first quarter of next year to the second half
of 2006. AMD said it plans to demonstrate its quad-core processor by the end
of this year and plans to ship by mid-2007.

But AMD took pains to describe its offering as “a next generation native
quad-core” design it expects to outperform Intel. Intel’s first offering
puts two dual-cores in a quad-core package. Dell has committed to using AMD processors, for the first time, in a new server expected to
launch by the end of this year.

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