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AMD may dodge PC weakness in third-quarter results

Although several companies are warning that third-quarter revenue will be lower than expected, the chipmaker appears to be on track to meet earnings later this week.

Although several companies have warned that third-quarter revenue and profits will be lower than expected, Intel rival Advanced Micro Devices appears to be on track to meet earnings later this week.

The Sunnyvale, Calif.-based chip manufacturer is expected to post earnings of 62 cents a share, or approximately $212 million, after the market closes Wednesday, according to a consensus of analysts polled by First Call/Thomson Financial. The results will mark the fourth consecutive profitable quarter for the company and pave the way for its first calendar year in the black since 1995.

Revenue will come to approximately $1.26 billion, fueled by sales of more than 3.6 million Athlon processors, predicted Dan Scovel, an analyst at Needham. Last year, the company lost 36 cents a share split-adjusted in the same period.

AMD will likely provide more details on chips coming in the near future, including the first Athlon chips for notebooks and servers and faster versions of Athlon and the budget Duron chip for desktops.

Despite a slowdown in PC sales, circumstances seem to be working in AMD's favor. Unlike Intel, AMD has not hit any manufacturing snags with its main desktop chip and has experienced more success in producing the fastest processors, including 1-GHz chips.

Though exact data for the quarter has yet to be produced, many analysts expect to see that AMD took market share from Intel in the high end of the consumer segment.

AMD benefits from being relatively small. Sluggish corporate PC sales have been at the root of many of the recent earnings warnings, and the company has almost no presence in that market.

"They are somewhat insulated by the fact that they have a minority market share," Scovel said. AMD's revenue is about a seventh the size of Intel's, while the company's quarterly earnings are far smaller than the roughly $2 billion Intel is expected to report.

The company may have dodged the brunt of the European flu in a similarly fortuitous manner, Scovel added. A good portion of AMD's European sales comes from flash memory, which is used in handheld computers and cell phones and is still in short supply. In addition, because a substantial portion of AMD's manufacturing takes place in Dresden, Germany, the company saw some benefit in the declining euro through lower costs.

Year-end buying should also benefit the company. "We are highly confident that Christmas is coming. We know that because the calendar tells us so," Scovel joked. "PCs have to pick up sometime."

Although the company has been on an upward swing, its stock has been limping. After hitting a split-adjusted high of $48.50 in June, the shares have settled back to the mid-$20 range.

Along with its financial numbers, AMD will likely shed more light on upcoming products. A 1.2-GHz Athlon and an 800-MHz Duron will probably appear later this month with faster versions to follow, said Joseph Osha, an analyst with Merrill Lynch.

"We believe that the company is on track to release a Thunderbird product--a derivative of Athlon--in the 1.5-GHz range by early next year," Osha wrote in a report. Last month, an AMD spokesman reiterated that the first notebook version of Athlon would also appear in the fourth quarter, and a version for servers would appear soon.