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Strong chip sales boost AMD results

Freed from its struggling flash memory joint venture, AMD's PC and server processor business posted a healthy fourth quarter.

Advanced Micro Devices topped expectations for fourth-quarter revenue on the back of strong processor sales across desktops, notebooks and servers.

For the fourth quarter of 2005, or the period ending Dec. 25, the chipmaker recorded $1.84 billion in sales. That figure includes sales of flash memory up until the final five days of the quarter, when AMD's Spansion joint venture offered shares to the public. Analysts surveyed by Thomson First Call were expecting $1.67 billion in revenue.

But the real driver behind AMD's strong revenue growth was its processor unit. The Computation Product Group, which makes the company's Opteron, Athlon 64 and Turion processors, enjoyed a 79 percent increase in revenue compared with the total in last year's fourth quarter. Sales were $1.31 billion, up from $730 million a year ago.

"The industry is healthy," said Hector Ruiz, AMD's chairman, president and chief executive officer, on a conference call following the company's announcement. "Customers and partners that have elected to partner with AMD are seeing the opportunities that come with providing choice to their customers."

AMD, based in Sunnyvale, Calif., credited market share gains in all market and product segments as well as around the world. Intel acknowledged Tuesday during a disappointing earnings conference call that AMD had picked up some market share during the quarter, and Current Analysis data showed a significant drop-off for Intel in the U.S. retail PC market.

AMD now estimates that it has 15.3 percent of total revenue from its and Intel's processor sales, said Henri Richard, chief sales and marketing officer. That number is an internal estimate of revenue market share based on publicly available data, an AMD representative said. The company estimated it held 9.6 percent revenue share in the fourth quarter of 2004, the representative said.

Unit share figures will not be available until Mercury Research releases its data, which usually comes about a month after Intel and AMD report their results.

Net income for the quarter was $96 million, or 21 cents per share. This includes the one-time effect of reducing the chipmaker's ownership stake in Spansion to 37.9 percent, the company said in a press release. Without that $110 million charge, AMD's pro forma net income for the quarter was $205 million, or 45 cents a share. The company lost $30 million in the fourth quarter of 2004.

AMD expects to grow at twice the rate of the rest of the industry in 2006, Ruiz said. It expects first-quarter 2006 revenue to be flat or slightly down compared with results in the fourth-quarter, which is in line with historical seasonal patterns. If the company hits that target, it will have improved first-quarter 2006 revenue by about 70 percent over the same period last year, said Bob Rivet, AMD's chief financial officer.

Unit sales of AMD's processors were up 27 percent over the prior year's quarter, and average selling prices rose 6 percent, Rivet said. Some analysts have been concerned that Intel's performance will mean a price war in the chip market, but AMD's pricing is holding steady--for now--as demand for its products increases, he said.

Chips ahoy
Early samples of chips built on the company's 65-nanometer manufacturing technology are healthy, Ruiz said. AMD is in the midst of preparing a new chipmaking factory in Dresden, Germany, that will double its capacity once the plant comes online, he said.

AMD will have a dual-core version of its Turion mobile processor ready by the middle of this year, said Henri Richard, the company's chief sales and marketing officer.

AMD beat Intel to the market with dual-core server chips and was close behind with dual-core desktop chips. However, Intel's first dual-core notebook chip was announced earlier this month at the CES conference and is expected to start appearing in new notebooks in February.