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AMD reports a loss but beats expectations

Advanced Micro Devices, a company with grand plans but short-term difficulties, today soundly beats analysts' earnings expectations by 25 cents.

AMD, a company with grand plans but short-term difficulties, today soundly beat analysts' earnings expectations by 25 cents.

The chipmaker and Intel rival reported a net loss of 72 cents per share for the third quarter. It was expected to lose 97 cents per share for the quarter, according to financial analysts surveyed by First Call.

The loss is considerably greater than the 1-cent-per-share profit from the same quarter a year ago but not as severe as the $1.10 loss posted last quarter.

In the most recent quarter, AMD had revenues of $662 million, down 3 percent from the $686 million from the like quarter a year before. The company's net loss was $106 million.

The company attributed its stronger-than-expected results to strong sales of its high-end--and higher profit margin--Athlon processor, as well 28 percent growth in its flash memory products from the quarter.

In order to break even in the current quarter, AMD will have to achieve revenues of about $850 million, the company said, a hope that isn't likely, even with an expected surge in holiday sales. "This is a very tough goal," said AMD chief executive Jerry Sanders in a conference call today. "In the face of uncertainty [from Taiwan earthquake effects], it remains just that--a goal."

In the last quarter, AMD earned $295 million from PC processor sales, Sanders said.

In addition, AMD said it would sell its communications and networking chip business, which has been profitable for many quarters. Sanders declined to state how much the company expected to receive for the division, but he said AMD would keep access to the division's intellectual property so it could be used in chips to power devices such as TV set-top boxes and cell phones.

AMD, while suffering from production issues and fierce competition from Intel, has potential for a rosier future, analysts have said.

Yesterday, AMD unveiled plans to take on Intel's upcoming 64-bit Itanium chip by extending the current "x86" chip architecture instead of following Intel's plan of starting afresh with new architecture. Though analysts are cautious about AMD's ability to pull off such a grand plan, several at this week's Microprocessor Forum noted that AMD could clean up if Intel's Itanium plan stumbles. The Itanium, formerly code-named Merced, is due in mid-2000 and is the first in Intel's family of high-end "IA-64" chips.

AMD's current high-performance Athlon chip, which has beat out current Pentiums from Intel, could fill current demand, while its new "x86-64" chips in 2001 could step in if Itanium flops.

The Athlon chip is key to AMD's recovery plan. The high-end chip comes with a healthier average selling price and profit margin than the low-end K6-2 and K6-III chips that the firm has been better known for in the past.

The company built 350,000 Athlon chips and shipped 200,000 in the last quarter as well as about 4.3 million of the K6-2 and K6-III chips, Sanders said. The reason more of the Athlons didn't make it into products was limitation on the number of "motherboards," the circuit boards that house CPUs and other computer innards.

Where the overall average selling price for AMD was $65, the Athlons sold for an average of just under $300, AMD said. Compaq and IBM sell Athlon-based computers, but Sanders said more PC makers should be announced in coming months.

In the current quarter, AMD would have been able to ship as many as a million Athlons, but the company is constrained by the Taiwan earthquake's effects on motherboards and other components, Sanders said. While AMD is confident it could make a million Athlons this quarter, earthquake uncertainties mean that the company likely only will ship 800,000.

That means AMD likely won't meet the projections of Merrill Lynch analyst Joe Osha and BancBoston Robertson Stephens analyst Dan Niles, both of whom had expected a million Athlons to ship in the current quarter.

Part of the reason AMD beat expectations was through cutting costs. Capital investments for chip factories were delayed until 2000, AMD said.

AMD showed prototypes of its Athlon chip running at 800 MHz this week that used new copper interconnect technology and built on a process that can etch details as small as 0.18 micron. "We're on track for 1 GHz by the end of next year," Sanders said. Athlons running at 750 MHz also will debut in the first quarter of 2000, he said.

In fact, this will be the last month AMD makes Athlon chips on the 0.25 micron process, Sanders said. Revenue from those chips should start arriving in the second quarter of 2000, he said.

Motorola deal
Another change that could help AMD is a possible deal with Motorola in which AMD could use its new Dresden, Germany, chip factory to build Motorola G4 chips. That deal would follow one AMD announced more than a year ago under which Motorola builds AMD's Athlon chips, formerly called K7s.

Using AMD facilities also would help out Motorola, which has been unable to meet Apple's demand for new G4 chips.

Making Motorola chips makes sense: Through a technology-swapping deal, the two companies expect to have identical chipmaking technology.

AMD plans to announce an arrangement to help cover many of the costs of the new Dresden facility, Sanders said. "We're highly confident that we'll have an arrangement that will enable to not have to absorb all the costs," he said, though he declined to state whether AMD would build another company's chips there or whether another company would take a stake in the plant.

AMD will use part of the Dresden facility's capacity to build flash memory, Sanders said. Flash memory sales brought in $195 million in revenue in the last quarter, the company said.