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AMD posts profit, record sales

The chipmaker soundly beats estimates, posting a net income of $1 million for the third quarter.

Tech Industry
Advanced Micro Devices today reported record revenues of $685.9 million for the third quarter and net income of $1 million, or 1 cent per share--the chipmaker's first profit in more than a year--as a result of a 30 percent surge in sales.

For the current quarter, AMD will try to build on this success by shipping a 400-MHz version of the K6-2 chip in volume, increasing the company's presence in the notebook market and keeping rival Intel at bay with lower-priced processors, chief executive Jerry Sanders said.

"Anecdotal evidence indicates that the worst is behind us," Sanders said. "We expect to ship hundreds of thousands of 400-MHz K6-2 in the current quarter. We do expect to have a major announcement of a K6-2 in a mobile product."

In addition, AMD will release a 450-MHz K6-3 with 256KB in the first quarter of 1999 and a 500-MHz K7 with a brand new architecture by the end of the first half of that year.

A consensus of analysts' estimates had pegged a loss of 12 cents a share for AMD, according to First Call. As previously reported, more optimistic analysts said that the company could report a 5 cent loss or possibly even post a small profit. AMD has not reported net income since the second quarter of 1997.

In the immediately prior quarter, AMD reported a net loss of $64.6 million on sales of $526.5 million, which resulted in a net loss of 45 cents per share. In the like period of 1997, AMD reported a net loss of $31.7 million, or 22 cents per share.

Nearly all of the surge in sales came as a result of increasing sales of the K6 and K6-2 microprocessors. AMD sold approximately 1.1 million more of the processors this quarter than in the previous quarter, a 70 percent increase. The company's losses last year came as a result of manufacturing problems associated with the K6.

"AMD achieved record sales and returned to nominal profitability on rapid market acceptance of our AMD K6-2 processor with 3DNow technology," Sanders said in a statement. "Excellent manufacturing and sales execution enabled AMD to return to profitability one quarter ahead of expectations."

The goal for the fourth quarter is to ship 4.5 million units, Sanders added.

While today's results likely will buoy AMD's stock price, the struggle isn't over yet for the chipmaker. Over the next two quarters, AMD is scheduled to release the K6-3, the next generation of the K6 family, as well as the K-7, a microprocessor based on an entirely new architecture. Historically, AMD has had difficulty in product transitions, according to Ashok Kumar, semiconductor analyst at Piper Jaffray.

Some products have slightly slipped already. Earlier, The K7 chip was due in the first quarter of 1999. Intel also will likely increase pricing pressure.

Sanders, however, said that there is a limit to the pricing pressure Intel can inflict upon AMD. The packaging on Intel's Pentium II chips adds approximately $20 to $25 to the cost of Intel's chips. AMD, therefore, currently has a built-in advantage. In addition, AMD is getting around the "infrastructure" issue of having enough motherboard and chipset partners working with it to make its solutions cost-effective for computer vendors. Now, roughly 30 vendors make motherboards compatible with the K6-2.

AMD will continue to price its processors 25 percent below Intel chips offering comparable performance or, conversely, offer chips with more performance for the same price. AMD's 333-MHz K6-2, for example, will be priced against Intel's 300-MHz Celeron with 128KB cache.

"We've got a bigger number. It will blow it away in performance. It's cheaper, and it's got 3D Now technology," Sanders said.

he noted also that AMD likely will begin to penetrate the commercial market for the first time in years with the K6-3 next year.

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