AMD's new chip cushions fall

2 min read

Athlon saved the day for Advanced Micro Devices Inc. (NYSE: AMD). Shares only fell 7 percent, down 1 1/4 to 15/16 Thursday after the company reported its fourth straight quarter of losses. But analysts are mixed over whether Athlon, also known as K7, is strong enough to chase off losses, or if it's just another K6 fiasco in disguise.

The K6, plagued by production problems, is just one of the troubles in AMD's past contributing to the current feeling of deja vu. The latest larger-than-expected loss of the chipmaker, about $200 million, echoes a first quarter of losses that also beat the street's estimates. The current loss is a whopping $1.37 a share, far below the expected loss of 40 cents a share.

"AMD was balancing on the edge of a razorblade, and that razorblade has been lifted 20 stories above the ground," said Dan Scovel, analyst Fahnestock & Co, who rates AMD a "hold." Though Intel is big enough that it is shielded from internal problems, AMD may get slaughtered on the market even if it does deliver.

Athlon, is "clearly better than anything Intel (Nasdaq: INTC) has, or will be able to get on the market any time soon," Scovel said. But he said he doubted it could overshadow the losses AMD feels from the "massive war" of pricing pressures Intel is waging on the low end. It's the only strategy they have to compete with the obviously superior chip, he added.

Other analysts said AMD will survive only because users want competiton.

AMD will survive because "The PC server world would like to see Intel lose its monopoly," said William J. Milton Jr., an analyst with Brown Brothers Harriman & Co., who rates AMD "neutral." He said AMD has to meet three main challenges in order to break even; the company has to produce and ship Athlon, it needs an infrastructure to support its motherboard, and it needs to win a customer base.

AMD only has a window of about a year before Intel brings out a competing chip, and its "definitely an uphill road," said Lawrence Borgman, analyst for Josephthal & Co. Inc. Though its difficult to figure out if pricing pressure from Intel and manufacturing problems will get the better of AMD again, he calls AMD a "hold."

Another explanation for AMD's relatively small market decline may be that anyone who was planning to jump ship had already bailed. When Compaq issued a profit warning, shares actually went up.

AMD chairman and chief executive, W.J. (Jerry) Sanders III, told analysts on a conference call that "an 800-pound gorilla can sit anywhere they want to. They sat on Cyrix and squashed them and now they are trying to sit on us." Whether Intel or AMD's internal problems are to blame, Athlon has got a lot of work to do.