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AMD leapfrogs estimates

Advanced Micro Devices loses far less than analysts expected in the fourth quarter, although year-over-year sales fell 19 percent.

A shift towards higher-end, higher-priced chips carried Advanced Micro Devices to a better-than-expected fourth quarter.

After market close Wednesday, the maker of PC processors reported a fourth-quarter net loss of $15.8 million, or 5 cents per share, on sales of $951.9 million. First Call's survey of analysts predicted a loss of 18 cents per share on revenue of $839.7 million.

"We had a great quarter operationally," AMD President Hector Ruiz said. "We are executing well and expect to continue to do so."

Fourth-quarter revenue fell 19 percent year over year. In the fourth quarter of 2000, AMD earned $178 million, or 53 cents per share, on revenue of $1.2 billion.

For the year, the company earned $28.9 million on revenue of $3.9 billion, compared with $793.8 million on 2000 sales of $4.6 billion.

AMD on Wednesday said it projects revenue to fall to about $900 million in the first quarter, with a net loss. The company expects to ship about 7.8 million processors in the first quarter--roughly the same total as the fourth quarter--at an average price of $90 each.

The report from AMD comes a day after Intel reported fourth-quarter results that topped analyst estimates. Like Intel, AMD was cautiously optimistic about 2002; AMD executives repeated earlier forecasts of second-quarter profitability and a "solid" profit for the year.

Company executives said AMD's share of the PC processor market was 20 percent at the end of the fourth quarter. AMD said its market share was between 16 percent and 17 percent at the end of 2000.

At this point, however, it is difficult to say whether AMD has won or lost market share, said Nathan Brookwood, a chip analyst at Insight64. While AMD's processor shipments increased in the fourth quarter, so did Intel's.

Gross margin increased to 32.3 percent from 23.3 percent in the third quarter. For the first time ever, AMD shipped fewer low-end Duron chips than the high-end Athlons, as the company decided not to match Intel's "aggressive" price cuts for Celeron chips in Asia, AMD CEO Jerry Sanders said. AMD in the fourth quarter produced about 4 million of its top-of-the-line chip, Athlon XP.

Profit margins also improved because of cost cuts, executives said. AMD's expenses for marketing, administrative and general costs consumed 17.2 percent of revenue in the fourth quarter, compared with 19.7 percent in the third quarter. Under its current cost structure, AMD now can make a profit on levels of revenue that previously resulted in losses, Sanders said during a conference call with analysts.

"The real issue here is the leverage that we have on our fixed costs," he said. "We just need to get the revenues up."

AMD's flash memory business continued to decline as the communications market remained weak in the fourth quarter. The company's memory group saw revenue fall 7 percent in the third quarter.

"I wish I could say something good about flash," Sanders said, adding that at this point, even just flat growth in flash memory would be "great."

One of AMD's big achievements in the quarter was seeing the average selling price (ASP) for processors rise from the $70 range to $90.

"That's up substantially. For them, ASP is crucial. At $100, they can be profitable," Brookwood said. "They are losing money, but the prognosis (for the future) was positive."

Although AMD expects to ship more of the Durons than Athlons in future quarters, the company believes it can keep the overall average price of its chips at $90; the company plans to ship more processors for servers and mobile computers, both of which sell for higher prices than chips for desktop PCs.

Despite efforts from Intel to keep processor prices up, AMD's chief rival will have to keep cutting prices to compete, Sanders said.

"Intel's ASPs have nowhere to go but down," he said. "Intel's over."'s Michael Kanellos contributed to this report.