Rising chip sales narrow AMD loss

Advanced Micro Devices on Thursday reported a third-quarter loss much smaller than expected, thanks to dramatic chip sales increases.

AMD reported losses of $31 million, or 9 cents per share, on revenue of $954 million for the quarter, which ended on Sept. 28. During the same period a year ago, AMD lost $254 million, or 74 cents per share, with revenue of $508 million.

Analysts expected the chipmaker to post a 36 cents per share loss and revenue of $858 million, according to First Call. A First Call representative, however, said the analysts' consensus estimate excluded some flash memory revenue that relates to AMD's acquisition of Fujitsu AMD Semiconductor Limited, or FASL, a flash memory joint venture between AMD and Fujitsu. The representative said AMD likely beat estimates, but it is unclear by how much.

AMD's dramatically improved results mirror an overall feeling that the PC market is improving. Intel reported better than expected earnings, thanks to higher chip sales, while research firms Gartner and IDC said PC shipments in the third quarter increased 14 percent and 16 percent, respectively, rates that were higher than expected.

AMD said its performance came from higher sales of its PC processors and flash memory chips. The average selling price of both processors and flash memory rose as well, a fairly unusual occurrence.

"We delivered strong sales growth in our microprocessor and flash memory business lines while tightly managing our expense structure," Robert Rivet, AMD's CFO, said in a statement. "Sales were up on a global basis reflecting increased demand in each of our major businesses."

AMD's Computation Products Group, which creates processors and chip sets, saw revenue increase 91 percent, year over year, to $503 million, and an operating profit of $19 million. Flash memory revenue, meanwhile, rose to $424 million and accounted for a $49 million operating loss.

Looking ahead, more PC makers will come out with desktops based on AMD's Athlon 64 chip in the next two quarters, CEO Hector Ruiz said during a conference call. The company shipped tens of thousands of Athlon 64 chips in the third quarter and will increase the number to hundreds of thousands this quarter, he said. He added that by the end of next year, more than half of the processors AMD ships will be from the 64-bit family.

So far, Athlon 64 chips have been bundled into consumer PCs, but in the first quarter of next year, the chips will also appear in business PCs, Ruiz said.

"There is not a single computer maker now not working with us to see if this fits their plans," Ruiz said, adding, "Except one." Dell is the only large computer maker never to use AMD processors in its PCs.

The Sunnyvale, Calif.-based manufacturer, however, isn't reaping all of the benefits of the upturn. So far, 2003 has been a precarious transition period for the company. On the positive side, the company's newest products have been well received in the market.

IBM has adopted AMD's Opteron processor for servers and workstations, a significant win for AMD in the corporate market. Sun Microsystems has also agreed to adapt its Solaris operating system to the chip and will probably use it in future servers.

Athlon 64, the desktop sibling of Opteron, came out in September. Hewlett-Packard has said it will use the chip in desktops.

But, on the down side, AMD continues to lose money in its struggle to keep pace with its larger rival, Intel.

AMD hasn't seen a quarterly profit in more than two years and has only experienced one annual profit in the past eight years. In its 33-year history, AMD has a cumulative net profit of $155.4 million.

The company also pushed back its release of chips that are made with a newer, 90-nanometer manufacturing process from the end of this year to the first half of 2004.

Ruiz said production on the 90-nanometer process--which is expected to lead to smaller, cheaper chips that will help the company compete with Intel--won't start until the middle of 2004. As a result, a version of the Athlon 64 for notebooks that weigh three pounds or less won't come until the end of next year.

To top it off, Microsoft this week said it is delaying versions of Windows that are tweaked for Opteron and Athlon 64 until the second half of 2004.

Despite those setbacks, AMD is looking to products like flash memory and its Athlon 64 to boost its fortunes in the fourth quarter and also throughout 2004. It's also planning a successor to the Opteron, dubbed K9, for 2005.