AMD names K7 Athlon, expects massive losses

AMD shares slide after the company announces that it is losing money much faster than analysts thought.

Michael Kanellos Staff Writer, CNET News.com
Michael Kanellos is editor at large at CNET News.com, where he covers hardware, research and development, start-ups and the tech industry overseas.
Michael Kanellos
3 min read
AMD shares slid this morning after the company announced yesterday that it is losing money much faster than analysts thought.

Shares were trading down 6.5 percent, falling from yesterday's close of 18.19 to 17 in midmorning trading.

AMD will likely report an operating loss of close to $200 million for the second quarter, chairman Jerry Sanders told analysts in a conference call yesterday, a far larger figure than previous net quarterly losses, on revenues that will not exceed $600 million.

AMD also made official yesterday that the company will market the new K7 as the Athlon processor.

Divided by outstanding shares of 146 million, the loss will come it at around $1.37 per share. Analysts expected a loss of around 40 cents a share, according to First Call. AMD will detail the quarterly results on July 14, a day after Intel reports.

Like last quarter, Sanders said the results largely come as a result of crushing price competition with rival Intel. Since the beginning of the year, Intel has accelerated price cuts and the clock speeds of its Celeron and Pentium II processors to take back business from AMD. Various market analysts have said that Celeron market share began to pick up in April.

How bad has the competition become? Last quarter, AMD surprised many when it admitted that its average selling price for microprocessors descended to approximately $79. For the second quarter, the average will come in around $60 said Sanders. The company's goal is to boost that number to $100.

In addition, AMD had to deal with a surplus of microprocessors being sold in the "gray" market and a seasonal PC slowdown. AMD produced around 6 million chips, but only sold roughly 3.7 million, the company said. Revenues from the K6-III and K6-2 chips came to around $250 million.

"Gray market activity and three official price actions by Intel dashed our hopes for an orderly pricing environment," moaned Sanders. "They could give the damn Celerons away and not have it materially affect their margins."

The loss estimates exceeds the net loss of $128 million last quarter and net losses of $64.5 million in the second quarter of 1998. The revenue estimate--below $600 million for the quarter--will represent a lower figure than what was achieved in the previous three quarters.

The second quarter estimate does not include gains from the sale of the company's Vantis unit but does include expenses for restructuring and layoffs, said Sanders.

Although AMD has suffered, three financial analysts recently lowered their estimates on Intel due to price competition.

Athlon, save us
The company's hopes now are largely pinned on the Athlon, the much touted K7 processor that is expected to outperform Pentium III chips running at the same speed.

The chip has started to ship, but will not start appearing in systems until August, said Rob Herb, chief marketing officer at AMD. The 600-MHz Athlon will cost $699 in volume and appear in systems retailing for between $1,999 to $2,599. A 550-MHz version will cost $479 in volume and appear in $1,599 and $1,799 systems, while the 500-MHz Athlon will cost $324 and appear in $1,299 to $1,499 systems.

AMD declined to name computer makers who will adopt the chip, but sources say IBM is planning an Aptiva S system for the Athlon and that Compaq will also come out with an Athlon PC.