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AMD expects flash memory to hurt revenue

Shares take a beating after the chipmaker says fourth-quarter operating income will be "down significantly" from the preceding quarter.

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Shares of Advanced Micro Devices took a beating Tuesday after the chipmaker said it would miss analysts' forecasts for fourth-quarter revenue.

The shortfall is partly due to the "competitive and challenging" flash memory market, AMD said Monday. The company now expects operating income will be "down significantly" from third-quarter operating income of $68.4 million but that sales will be "up slightly" from the $1.24 billion in the third quarter.

"In a competitive and challenging NOR Flash memory market, the Memory Group is anticipated to have lower fourth-quarter sales and an operating loss," the company said in a statement.

In early trading Tuesday, the company's stock was down $4.15, or 20 percent, to $15.98.

Sunnyvale, Calif.-based AMD will report its fourth-quarter results after market close Jan. 18.

In October, AMD cited slow sales of flash memory chips for lower-than-expected third-quarter revenue.

AMD has also lost ground in the flash memory market to chip rival Intel. Santa Clara, Calif.-based Intel climbed back up the rankings in the flash memory market in the third quarter, research firm iSuppli reported in November, thanks to its pricing strategy. Meanwhile AMD lost a substantial amount of market share.

Intel pulled in $639 million in flash revenue during the third quarter, up 8.9 percent from the second quarter, to account for 16 percent of the flash memory sold worldwide.

"Intel has been mounting a remarkable resurgence in 2004 by using aggressive marketing and pricing strategies," iSuppli said in its report.

Intense competition on price reduced the size of the overall market. Only $4.2 billion worth of flash memory was sold in the third quarter, 4 percent less than in the previous quarter. The decline marks the first sequential quarterly decrease since the first quarter of 2003.

Spansion, AMD's flash memory division, expects to come out with the Ornand family of flash memory chips in the first quarter. These chips will be capable of being inserted into cell phones, which typically use NOR flash memory, the kind made by Intel and AMD, and camera flash cards, which usually use NAND flash, made by Samsung and Toshiba.