Surging on sales of its Athlon microprocessor and flash memory, Sunnyvale, Calif.-based AMD reported record net earnings of $207 million, or $1.21 per share, for the second quarter.
Analysts expected earnings per share to come in at $1.14, although the exact consensus estimate is murky, because analysts differed in how they calculated their individual estimates. Either way, AMD beat the consensus opinion.
Last year, AMD lost $162 million, or $1.10 per share, in the second quarter, excluding extraordinary events. The company reported losses again in the third quarter. The current results mark the third consecutive profitable quarter for AMD and further underscore the reversal of fortune the company has experienced since last year.
Revenue for this year's second quarter came to $1.2 billion, close to double revenue of $631.6 million in the second quarter last year.
The future looks strong as well. The company has already sold out of flash memory and some classes of microprocessors, company executives said. The average selling price of AMD microprocessors rose to the low $90s and will possibly hit the company's goal of $100 by the fourth quarter.
Price cuts, AMD's bane in the past, are also slowing down, CEO Jerry Sanders said in a conference call following the announcement.
"We have such a desirable product, we don't have to cut prices to get business," he said. "We've demonstrated that we are reasonably un-crushable."
In 1999, AMD was locked in a price war with Intel in the budget consumer segment. After reporting a profit in the fourth quarter of 1998, the company lost millions in the three subsequent quarters. The company's stock traded below $20 for long periods.
The release of the Athlon, AMD's microprocessor for performance PCs, began to change the picture. Strong acceptance of the chip in the consumer market, combined with shortages of Pentium IIIs, opened the door for market share gains. For the latest quarter, the company sold slightly more than 1.8 million units of Athlon and Duron, a variant of Athlon, slightly more than expected.
In the third quarter, AMD expects to produce 3.6 million Athlon chips. "The bulk of our production (in the second quarter) was K6-2. That shifts this quarter. Now, the preponderance of our production will be (Athlon)," Sanders said. Athlon chips sell for far higher prices.
AMD, as expected, will also release a 1.1-GHz Athlon this quarter and will follow with faster versions, Sanders said. Later in the year, AMD will release Mustang, an Athlon for servers, and Corvette and Camaro, Athlon versions for notebooks.
A worldwide shortage of flash memory also boosted sales at AMD. The company is No. 2 in this market and broke ground this morning on a new manufacturing facility to be jointly run with Fujitsu.
AMD's stock regularly trades above $90. Because of the turnaround, the company is paying taxes again on its income.
"AMD had another great quarter," Hector de J. Ruiz, AMD's president, said in a statement. "Strong revenue growth in both of our principal product lines--PC processors and flash memory devices--again resulted in record sales and earnings.
"Our progress in flash memory was equally successful. Memory Group sales grew by more than 10 percent over the immediate-prior quarter."
Despite some reports that the chip market is slowing, AMD said orders actually are increasing. Some flash memory customers, in fact, are trying to renegotiate purchase contracts to buy more product in 2001, executives said.
"There is not a shred of evidence that there is any loosening for demand for our products," said Ben Anixter, a vice president at AMD.
Analysts were generally upbeat about the results.
"They handily beat the estimates," said Hans Mosesmann, an analyst at Prudential Securities.
Despite the profits, however, AMD will face challenges continuing to grow market share, added Ashok Kumar of US Bancorp. The fastest-growing markets are notebooks and servers in the PC world, and AMD plays a limited role. Intel will also soon come out with the Pentium 4.
"There is a limited potential for the company to gain market share," Kumar said.