AMD edges past estimates in tough quarter

Advanced Micro Devices dodges the European flu by reporting better-than-expected earnings on record revenue.

Michael Kanellos Staff Writer, CNET News.com
Michael Kanellos is editor at large at CNET News.com, where he covers hardware, research and development, start-ups and the tech industry overseas.
Michael Kanellos
2 min read
Advanced Micro Devices dodged the European flu Wednesday by reporting better-than-expected earnings on record revenue, although the company said challenges lay ahead for the rest of the year.

AMD reported fiscal third-quarter net earnings, excluding one-time gains, of $219 million, or 64 cents a share--2 cents better than expectations. Including nonrecurring gains, the company achieved earnings of $1.18 per share. Revenue came to $1.21 billion.

The company sold more than 3.6 million Duron and Athlon processors, as expected. Despite hitting its goal, AMD said the quarter was tougher than expected.

The fourth quarter will also come with problems. Sales of Duron, a budget version of Athlon, will be slow in the fourth quarter because of a lack of cheap "integrated" chipsets, CEO Jerry Sanders said in a conference call.

"There is going to be a dampening effect because we don't want to precipitate a price war," he said. "We believe there is a lid on how many (Durons) we can sell."

"We are not planning for unit sales to match capacity," Sanders continued.

In addition, AMD's plans to get IBM, Hewlett-Packard or Compaq Computer to adopt an Athlon chip in a corporate computer may not pan out until the second half of next year because of sluggish corporate demand. And server and notebook versions of Athlon--code-named "Mustang", "Palomino" and "Morgan"--are being pushed from the fourth quarter to the first part of next year.

AMD saw revenue grow slightly more than 3 percent from the previous quarter, although revenue from processors grew by 10 percent. Intel's stock was pounded last month when it warned that sales would sequentially grow by only 3 to 5 percent, less than anticipated.

The Sunnyvale, Calif.-based chip manufacturer was expected to post earnings of 62 cents a share, or approximately $212 million, according to a consensus of analysts polled by First Call/Thomson Financial.

Revenue, meanwhile, was supposed to come to approximately $1.26 billion, Dan Scovel, an analyst at Needham & Co., predicted before the earnings call.

Strong sales of Athlon chips, along with high demand for flash memory, have been the basis of a turnaround that started roughly a year ago. The results mark the fourth consecutive profitable quarter for the company and pave the way for its first calendar year in the black since 1995.

Last year, the company lost 36 cents a share split-adjusted in the same period.

Wednesday's financial results included a gain of $337 million resulting from AMD's earlier sale of its voice-communications business.