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AMD blows past estimates on strong sales

Riding on the strength of its Athlon processor and sales of flash memory, Advanced Micro Devices reports earnings that beat analyst estimates by more than double.

Riding on the strength of its Athlon processor and sales of flash memory, Advanced Micro Devices reported record revenues and earnings for the first quarter and said the second quarter could be even better.

The Sunnyvale, Calif.-based processor maker said revenue for the first quarter came in at $1.09 billion, while earnings, including interest and other income, came to $189.3 million, both records for the company. Earnings per share came to $1.15, more than double the 52 cents per share expected by a consensus of analysts polled by First Call.

Although AMD's earnings-per-share number can jump dramatically because of the relatively limited number of shares in circulation, the revenue and profit figures generally exceeded expectations. AMD earlier this month told investors that revenue would exceed $1 billion, with some analysts estimating revenue of $1.06 billion.

"They demolished the numbers," said Dan Niles, an analyst at Robertson Stephens. "These guys came in much higher than expectations." The rise in profits emerged from an increase in gross margins, stronger sales and higher selling prices of chips, he said.

AMD shares were at about $63 at the 1 p.m. PST close of regular trading today. In after-hours trading they shot up to $76.

The surge in sales came largely on the strength of AMD's Athlon processor, which competes directly against Intel's Pentium III. The Athlon chip has been greeted with good reviews from benchmark testers and strong acceptance in the consumer market.

During the quarter, the company also managed to reignite its relationship with Gateway. In addition, AMD appointed Hector Ruiz, a former Motorola executive, as chief operating officer.

"AMD had the best quarter in its history," chief executive W.J. "Jerry" Sanders said in a statement. "Each of our product groups reported significant growth in the first quarter. Led by strength in PC processors and flash memory sales, sales from AMD's three product groups grew by more than 13 percent sequentially."

Athlon shipments grew by 50 percent to 1.2 million chips, the company said. Athlon sales will likely increase in the second quarter, Sanders said on a conference call, noting that AMD is currently producing more Athlons than it is selling, so inventories are being created.

"We think that unit shipments of PC processors in Q2 will be somewhat higher than they were in Q12. This is somewhat atypical," Sanders said. "We think the PC market is strong and getting stronger."

The second quarter will also see the debut of the "Thunderbird" and "Spitfire" versions of the Athlon. These chips, designed for the high-end and performance niche of the PC spectrums, will start to ship in volume production in June. Thunderbird is expected to run at 1.25 GHz.

Although AMD appeared to perform quite well, some analysts believe that challenges lie ahead. For one, AMD has yet to depreciate the costs of its Dresden manufacturing plant. That should bring down the income figures, said Ashok Kumar, analyst at Piper Jaffray.

Analysts have also questioned whether Spitfire will be able to compete against Intel's Celeron on price. Spitfire is expected to be a relatively large chip for the budget sector, which generally leads to an expensive chip.

Sanders, however, said that the chip will be competitive against Celeron, adding that the cost of making Spitfires is "substantially less than producing our current products."

Last year, mired in a price war with Intel, AMD lost 81 cents a share on revenue of $632 million. In its fourth quarter last year, AMD reported sales of $969 and net income of 43 cents a share.