ATI Technologies warns of 3Q loss

ATI Technologies Inc. (Nasdaq: ATYT) said Wednesday it expects to report a third quarter loss of 6 to 7 cents a share amid sluggish sales. The results will be far below the profit of 14 cents a share predicted by First Call's consensus of 14 analysts.

The company cited a growing worldwide computer component shortage, which has caused a slowdown in the system integrator (SI) or system builder channel, a key ATI market. The aggressive pricing by newly-consolidated graphics board vendors in order to manage their excess inventories has also taken its toll on revenue, the company said.

Shares in the supplier of 3D graphics and multimedia technology have gained since the company topped estimates in its second quarter.

ATI now expects to report revenue of about $300 million for the third quarter, a one percent decrease over the same period last year. Operating gross margins are expected to decline to around 21 percent of sales versus 33.2 percent for the second quarter.

ATI's projected loss doesn't include adjustments for the amortization of acquired in-process research and development, other intangible costs, and a one-time write down of inventory of about $56 million.

The company cited the severely constrained supply of components to the computer industry, including such items as CPUs, DVDs and capacitors for the revised estimates. The constraint caused hardships to system builders as component suppliers preferentially allocated parts to their top tier accounts. System builders comprise a major portion of European sales where the shortages were severe, the company said.

The aggressive pricing of ATI's newly-consolidated competitors, who needed to clear out inventories of graphics boards, compounded the shortfall. The competitive market also necessitated movement of the RAGE 128 PRO down to the mainstream segment faster than anticipated, the company said. One of the company's main competitors, S3 (Nasdaq: SIII) is selling a majority stake of its graphics chip operations in a joint-venture agreement with VIA Technologies as it refocuses on Internet Appliances.

The company is optimistic that its financial results will immediately improve in July with the initial shipment of its new the RADEON graphics chips. Fourth quarter revenues are expected to be slightly above the third quarter, and margins are expected to improve and moderate operating cost increases. Further financial improvements are expected in the first quarter of fiscal 2001.

The company will announce its third quarter financial results on July 6.

ATI's top competitors include Creative Technologies (Nasdaq: CREAF), Intel (Nasdaq: INTC), and S3 according to Hoover's Online.