AMD vaults past estimates for blowout quarter

The chipmaker reports net income for the fourth quarter of $65.1 million, or 43 cents a share, well above recent consensus estimates.

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's comeback looks like it could be for real.

The processor manufacturer reported net income for the fourth quarter of $65.1 million, or 43 cents a share, well above recent consensus estimates of 1 cent a share and more optimistic visions of 26 cents a share. AMD's earnings per share can swing radically because of the limited number of shares in circulation, but the total profit exceeded expectations. Revenue came to $969 million, 23 percent up from the same quarter a year ago.

A significant portion of the profit came from the Athlon processor, AMD's competitor to Intel's Pentium III. The chip has found increasing customer acceptance. Just as important, AMD did not have to contend with any manufacturing snags or deflating pricing wars during the fourth quarter, issues which have confounded the company in the past.

The company made approximately a million of the chips. The average selling price, or ASP, of AMD microprocessors rose from $65 last quarter to $80 on the strength of Athlon.

"Athlon is a whole new game," chief executive Jerry Sanders said in a conference call. "I can only tell you that we are working very hard to ensure there are no missteps.

"Our long-term goal of 30 percent market share by the end of 2002 remains in place," he added.

Sanders said that AMD will release an 850-MHz version of Athlon this quarter and follow it with a 900-MHz version soon after. In addition, AMD hopes to raise its ASP to $100 in the second half of 2000.

Sanders, who is often controversial, also hinted that he may step down as CEO by the end of 2001 when his contract expires. The company is currently looking for a chief operating officer, who would become the lead candidate to take over the CEO spot.

"We've got time for a smooth transition. I think we're in good shape once we fill the COO space," he said. Sanders has often incurred the wrath of AMD's investors for seesaw financial performance and his relatively high compensation. Former COO Atiq Raza left the company abruptly last year. Like Raza, the future COO will likely come from a technical, rather than sales, background.

Despite the good news, the future remains tricky for the company. To achieve its goals, AMD will have to gain market share in the commercial space, an area it is just entering, Sanders and others admitted. Chipsets for multiprocessor Athlon systems are coming later this year, which will likely help.

Pricing pressure also will likely continue to exist. In the past, surges by AMD have been clipped by Intel price cuts. The same could occur again, but because the Athlon competes against Intel's main processor lines, it is slightly less likely, Sanders predicted.

"It is not in Intel's interest to collapse pricing," Sanders said.

At 1 p.m. PT, the close of regular trading, AMD shares were up $2 to $41.

For 1999, AMD's revenues came to $2.9 billion, up 12 percent. Still, because of massive losses in the first three quarters, AMD reported a net loss of $88.9 million, or $0.60 per share, including a one-time after-tax gain of $259 million from the sale of its Vantis division. Without the sale, losses surpassed $337 million. Last year, the company lost $104 million.

The company shipped more than 800,000 Athlon processors during the quarter, meeting its goal, and saw strong growth in flash memory. Sales of flash and other communications products grew by 17 percent over last year and have been accelerating. Fourth-quarter sales doubled over the same period a year ago and will rise another 10 percent in the current quarter, said Ben Anixter, an AMD vice president.

The company also moved strongly to move more of its manufacturing to the more advanced 0.18-micron manufacturing process. Success in this transition is a major issues, said analysts. Intel was hit by problems in converting to the 0.18-micron process late last year.

Transmeta, which joined AMD as an Intel rival today, is happy with AMD for providing pressure on Intel, said Hugh Barnes, a member of the company's board of directors and chief technology officer of Compaq until 1997. AMD's pressure in high-end desktop chips has forced Intel to spend less attention on its mobile products, Barnes said.