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ATI posts narrower-than-expected loss

Graphics chipmaker ATI Technologies edges past lowered analyst forecasts after the company announces slightly higher-than-expected sales.

Graphics chipmaker ATI Technologies edged past lowered analyst estimates Wednesday, thanks to slightly higher-than-expected sales.

The embattled chipmaker reported a loss of $26 million, or 11 cents a share, on sales of $232 million for its second fiscal quarter.

A consensus of analysts polled by First Call predicted ATI would lose 12 cents a share on sales of $230 million.

The company's second-quarter sales fell 39 percent compared with the same period last year and 27 percent for the first six months of fiscal 2001 as a result of the slowing PC market. The sales decrease touched ATI's entire line of graphics chips and graphics cards.

ATI warned analysts March 1 that it would post a loss between 11 cents and 13 cents a share because of slower-than-expected sales.

"Second-quarter sales results were significantly impacted by the greater-than-expected slowdown in the global personal computer market," ATI President David Orton said in a statement. "Profitability for the quarter was affected by the lower revenue and a reduction in average selling prices for the company's board products."

ATI expects modest revenue growth in its third quarter. Combined with improved gross margins and reduced expenses, that should bring income "back toward breakeven," Chief Financial Officer Terry Nickerson said in a statement.

If sales stay the same or increase slightly, ATI should come close to breaking even in its fourth quarter, company executives said.

But ATI isn't out of the woods yet. Despite a number of as-yet unannounced notebook PC design wins for ATI's Radeon Mobility graphics chip for notebook PCs and a licensing agreement with Intel allowing ATI to produce chipsets for Intel-based PCs, the graphics chipmaker still faces challenges.

ATI's chief challenge will come from competitor Nvidia. Jen Hsun Huang, Nvidia's CEO, recently revealed plans to double the company's market share. Nvidia currently claims between 22 percent and 26 percent of the graphics market. Should Nvidia succeed in building market share, its gains would come largely at the expense of ATI.

ATI says it is the top supplier of video cards for the retail market, with a 39 percent share, and the top provider of graphics chips for notebook PCs, with a 57 percent market share.