The shattering loss was AMD's second negative quarter for the year and the fourth successive loss in a row. Analysts had expected a loss of 20 cents a share, according to a poll from First Call. Estimates ranged from a loss of 38 cents to a loss of two cents.
Unlike 1997, when AMD's losses came as a result of manufacturing problems with its K6 processor, AMD's woes now stem from an ongoing decline in processor and computer prices as well as weakness in other sectors. The rise of the sub-$1,000 and the sub-$800 computer, financial strain in Asia, and a decline in domestic computer demand have squeezed profits out of the hardware industry.
"The substantial growth in sales of AMD K6 processors in the just-completed quarter couldn't offset the decline in sales from our Communications Group, our Memory Group, and Vantis, our programmable logic company," said W. J. Sanders III, chairman and chief executive officer, in a prepared statement.
"Weakening demand in the worldwide semiconductor industry, coupled with continued price pressures on flash memory products, produced a substantial decline in revenues from our non-microprocessor business units."
In a conference call, Sanders said that profitability may not be achieved in the third quarter because of continuing unfavorable market conditions across all of its product lines.
Though AMD microprocessor unit sales are surging, prices are simultaneously plummeting. The company shipped 2.7 million microprocessors during the quarter, a big jump over shipments of 1.6 million in the first quarter, said Ashok Kumar, semiconductor analyst for Piper Jaffray.
But the average selling price of AMD's microprocessors went from $105 in the first quarter to $85 in the quarter just ended. Manufacturing costs come to around $50 a chip, according to Kumar.
And the end is not yet in sight, he added. Rival Intel recently stepped up its cost-cutting efforts and will come out with a faster version of its inexpensive Celeron chip in the fourth quarter. It has also been cutting prices on Pentium II chips, which invariably forces AMD to cut prices on its processors.
Microprocessor prices have been descending across the board for all manufacturers, added Brian Matas, vice president of market research at IC Insights. The average selling price of all microprocessors was $92 in April. It dropped to $75 by May.
Despite the losses, AMD has been racking up impressive design wins with major manufacturers. Compaq, IBM, and Hewlett-Packard (HP) all began, or agreed to begin, using AMD chips this year. These are good design wins to be sure, but these companies are adopting AMD mostly for the low-end part of their lineup.
Sales declined by 3 percent from the immediate-prior quarter, and by 11 percent from the second quarter of 1997. Sales for the first quarter of 1998 amounted to $540,856,000, which resulted in a net loss of $62,727,000, or $0.44 per share. In the second quarter of 1997, AMD reported sales of $594,561,000, and net income of $9,968,000, or $0.07 per share, diluted.