AMD earnings miss mark

The chipmaker reports second-quarter profits that fall far short of Wall Street expectations.

Paul Festa
Paul Festa Staff Writer, CNET News.com
Paul Festa
covers browser development and Web standards.
3 min read
Advanced Micro Devices (AMD) today reported second-quarter profits that fell far short of Wall Street expectations, following the company's recent release of its multimedia chip technology.

AMD reported net profits of $9.97 million, or 7 cents a share, for the quarter ending June 29, compared with a loss of $34.7 million, or 26 cents a share, a year ago. Wall Street had expected the company to post earnings of 23 cents a share.

Revenues for the chipmaker climbed to $594.6 million for the quarter, up 30.6 percent from a year ago and 7.7 percent over the previous quarter.

Revenues from the company's communications group, memory group, and programmable logic business unit, Vantis, were essentially flat with the previous quarter and up 8 percent from a year ago, chairman and chief executive W.J. Sanders III said in a statement.

Nonetheless, the company said its computation products group posted a sales growth of 36 percent over the previous quarter, driven by $100 million in sales of its AMD K6 MMX-enhanced processors that were released in April.

Analysts say three major, industry-wide factors could likely contributed to AMD's performance:

  • A sluggish personal computer market is tempering profits and stock performance.

  • Competition and excess inventory are pressuring companies to reduce prices.

  • While analysts expressed optimism that the second half of the year would see improved performance, the industry is heading into the summer quarter, traditionally its slowest.

    AMD and other microprocessor makers such as Cyrix (CYRX) are struggling to maintain growth in a market dominated by Intel (INTC). Intel, which in May downgraded its own second-quarter expectations citing weaker-than-anticipated demand, particularly in Europe, has cut prices to stay competitive with the smaller microprocessor chipmakers, though analysts disagree over the extent to which the chip giant faces any significant threat.

    AMD, however, is counting on its MMX-enhanced K6 processor to help it compete with Intel and eventually return the company to more robust profitability.

    "The K6 could be a very profitable product," said William Milton, Jr., analyst at Brown Brothers Harriman. Milton described the chip as a viable competitor for Intel's Pentium II. "In most performance benchmarks, it is equivalent to or outperforms the Pentium II," he said.

    AMD has won contracts from several Intel customers, including Digital Equipment, Vobis, and Fujitsu. Cyrix too has made headway into the market; Compaq recently chose the company's chip for its low-end Presario computer line.

    But for the most part, top-tier PC manufacturers are still opting for Intel processors, particularly for their high-end machines.

    "The money is in the expensive chips," said Bruce Rabbe, an analyst with Collins and Company. "That's where the profit is."

    Thanks to substantial price cuts from Intel, however, the expensive chips are getting cheaper--a potential threat to second-tier chipmakers' profits. "AMD has vowed to keep its prices 25 percent below Intel," Milton said. "If there's a price war, the company's profits could disappear."

    Analyst estimates for
    microprocessor stocks
    (Ticker symbol)
    Fiscal Quarter Analyst Estimate Reporting Date
    Advanced Micro Devices
    Q2 23 cents July 8
    Q2 $1.80 July 15
    Q2 8 cents loss N/A
    Source: First Call