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AMD cuts second-quarter outlook

Blaming the effects of SARS on computer and handset sales in Asia, the company says revenue will total about $615 million, or $100 million less than it had forecast in April.

Chipmaker Advanced Micro Devices on Tuesday predicted lower-than-expected second-quarter sales.

Blaming the outbreak of the severe acute respiratory syndrome (SARS) virus, the company said that its revenue for the quarter ending June 29 will total about $615 million, or $100 million less than it had forecast in April when it reported first-quarter earnings.

AMD's sales in Asia of PCs and cell phones fell unexpectedly, which led to an overall decline in sales for the quarter, a company representative said.

"The anticipated global sales improvement in the month of June did not materialize as we had anticipated," Robert Rivet, AMD's chief financial officer, said in a statement. "In particular, the decline in personal computer and handset sell-through in China and other Asian markets, largely related to the SARS epidemic, significantly affected AMD's sales in the second quarter."

After posting a smaller-than-expected quarterly loss during the first three months of the year, AMD had been hoping to match first-quarter revenue of $715 million in the second quarter. In April, the chipmaker had seen a potential for increases in shipments of its Athlon XP PC processor and its flash memory products from the levels of the first quarter.

Those expectations and an ongoing effort by the company to cut costs had analysts predicting that AMD would post a loss of 28 cents per share and revenue of $723 million for the second quarter, according to FirstCall.

But those figures, which represented a slight increase in revenue and a much narrower per-share loss than the first quarter's revenue of $715 million and loss of 42 cents per share, ultimately fell victim to the SARS virus, AMD said.

The chipmaker's statements contrast with those of rival Intel, which earlier this month described the quarter as "seasonal" and which is sticking to its outlook. Some analysts had believed that Intel might lower its predictions for the quarter because of SARS.

But analysts' initial fears of a PC market slowdown triggered by the virus seem to have gone unrealized. SARS had a fairly limited impact on the PC market as a whole, denting the local Chinese market sales by roughly one or two percent only, said Roger Kay, an analyst with IDC.

"The damage seems to have been limited primarily to China and then primarily to the consumer market. But even there, some sales shifted over from retail to direct-over-the-Web," Kay said.

Kay speculated that there could be more to AMD's warning than could be put down to SARS. It may be likely that AMD counted on business coming from China that did not materialize.

Executives said during AMD's first-quarter earnings conference call that the company had enjoyed strong sales in China during the quarter. But those sales may not have carried over into the second quarter, and AMD might not have found out about the situation until later, said Dean McCarron, a principal analyst at Mercury Research.

"You could look at that and ask, 'Was that sustainable business when AMD did it?'" he said.

The second quarter is often difficult to predict, as chipmakers traditionally see a large number of orders roll in during the last few weeks of the period, when PC makers begin gearing up to deliver PCs for the back-to-school market.

So far, the PC processor market in the second quarter of 2003 has shown a trend toward somewhat better-than-usual sales, making for a strong possibility that AMD's situation will be isolated to the company.

"The early indications I have for Q2 is that the quarter is just a little better than seasonal. The seasonal average is shipments are roughly down 2 percent sequentially. If we come in flat with Q1, that would be a great quarter," McCarron said.