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AMD warns of big second-quarter loss

Blaming a weak PC market, the chipmaker warns that revenue will be lower than anticipated, leading to a substantial operating loss.

Chipmaker Advanced Micro Devices warned that revenue for the second quarter would be 22 percent to 24 percent lower than anticipated, which will lead to a substantial operating loss.

The Sunnyvale, Calif.-based chipmaker said Tuesday that revenue for the quarter would come in at $620 million to $700 million--$200 million less than the $820 million to $900 million projection given in March.

AMD blamed the shortfall on a weak PC market and, in particular, on weakness in areas where AMD has historically been strong. Sales of consumer notebooks and desktops in the United States and Europe, where AMD generally sells well, are both down substantially. The company recently began to enter the server market, but that market, too, has gone south.

Emerging markets such as China and Latin America represent growth opportunities, "but we are not doing as well as our competitor" in those regions, said Hector Ruiz, AMD's CEO. "The market is one of the worst in recent history," he added. Unit shipments declined, but so did average selling prices.

Excess inventory around the world could also possibly dampen chip sales in advance of the back-to-school season, said Rob Herb, executive vice president of sales. The PC market should recover in the second half, he added, but it is hard to say how much it will improve.

"The back-to-school season is certainly not shaping up to be a barn burner," Herb said. "Because we don't play in the full range of the spectrum of the market, we will probably lose a little share."

Despite the decline in PC chip sales, AMD said flash memory, which goes inside communications products and cell phones, rose sequentially. Prices have also stabilized, said Ruiz.

Ruiz further added that Hammer, AMD's next-generation chip, remains on track. AMD will begin to ship to PC makers in the fourth quarter, and Hammer PCs will come out in the first quarter of 2003.

"We are sampling (Hammer) products that meet all of our performance tests," said Ruiz.

In June, rival Intel warned that revenue would be between $6.2 billion and $6.5 billion, rather than $6.5 billion and $6.8 billion, because of slow demand in Europe and a shift toward cheaper processors.

The second-quarter loss marks the fourth in a row for AMD. Although some analysts last year expected the company to report a profit in 2002, many now expect losses to continue.

AMD will host a conference call at 3 p.m. PDT on the warning.