AMD warns of even worse losses

The Sunnyvale, California-based chipmaker, which will announce first-quarter losses after the market closes on April 14, today said that it shipped approximately 4.3 million processors during the quarter, well below company predictions that it would sell close to 5.5 million and below the 5 million-plus processors it sold in the final quarter of 1998.

To compound matters, AMD said that the average selling price for its processors dipped to $78. Earlier in the quarter, the company warned investors that it would suffer significant financial losses and lay off a number of employees--at a time when it was predicting it would report an average selling price of $89. AMD has often said that it needs to achieve an average price of $100 to turn a profit.

Based on a preliminary analysis from AMD, first-quarter revenues are expected to be approximately $630 million. Last year's comparable quarter produced revenues of $541 million. In the immediate-prior quarter, revenues were a record $789 million.

Today's earnings warning was the third issued by AMD in the past two months.

The news, coming just days before the quarterly report, was not good, analysts agreed.

"The balance sheet is in a pretty disastrous condition," said Ashok Kumar, semiconductor analyst with Piper Jaffray, who predicted average selling prices close to $75 last month. "They need CPR."

AMD's woes stem from manufacturing problems and a processor price war. AMD has experienced manufacturing problems in recent months, resulting in fewer high-speed processors. The production conundrum mostly occurred in the first eight weeks of the quarter, when AMD had difficulty producing a sufficient number of 350-MHz and faster K6-2 processors. While AMD was able to work through this problem, it later began experiencing difficulties in producing enough K6-III processors.

Despite the shortfalls, chip production shot up again in March and the company said it expects to still hit its goal for the year of selling 20 millioin to 25 million microprocessors. K6-III and the upcoming K-7 processors will also help the company raise its average selling price, AMD said.

AMD and rival Intel have also been drastically slashing prices to gain market share in the sub-$1,000 PC market, which claims about 40 percent of all PC sales. Intel's bottom line has also been hurt by the low-cost chip market, but nowhere close to the pinch felt at AMD.

Last month, AMD said it expected a "significant loss" in its first quarter because of manufacturing problems with its core K6 family of chips, and announced it planned to lay off about 300 employees.

The job cuts, which represent about 2.2 percent of AMD's workforce of 13,800, are the first at AMD in about three years, a spokesman previously said.

Besides the pressures of the low-cost PC push, analysts say one of the big problems for the company is that it does not have enough fabrication facilities, or fabs, to consistently compete with Intel. (See related story)