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AMD meets second-quarter expectations

The chipmaker says its Memory Group achieved record sales of $673 million and predicts moderate growth for the third quarter.

AMD posted a profit Wednesday, reporting second-quarter earnings that met analysts' expectations.

The chipmaker's second-quarter net income totaled $32 million, a 9 cent per share profit, on revenue of $1.3 billion for the quarter, which ended June 27. During the same quarter a year ago, AMD took in only $645 million, resulting in a $140 million, or 40 cents a share, loss.

On average, 28 analysts polled by Thompson First Call expected AMD to report a 9 cent per share profit, while 23 analysts predicted that the chipmaker would post revenue of $1.2 billion.

The solid quarter was due to flash memory sales that rose to a company record, AMD executives said. Flash memory chips are used to store data in a wide range of electronics devices, such as cellular phones and PDAs.

With this, AMD's third consecutive quarterly profit, CEO Hector Ruiz said the company has taken control of its fate by introducing leading technologies, such as 64-bit PC and server processors, and improving its relationship with customers and its manufacturing--all things that, according to Ruiz, separate AMD from rival Intel.

"Something transformative is going on at AMD, something that can be explained more by the growing independence of our financial performance," Ruiz said, during a conference call to discuss AMD's earnings. "We have deliberately and methodically positioned ourselves to be in control of our own destiny."

"We achieved record Spansion flash memory sales in the second quarter and more than tripled operating income, from $14 million to $45 million," Robert J. Rivet, AMD's CFO, said in a statement. "Accelerating AMD Opteron and Mobile AMD Athlon 64 processor sales contributed to a double-digit operating margin for our microprocessor business."

AMD's Memory Group, which gains its revenue from AMD's Spansion joint venture with Fujitsu, achieved record sales of $673 million in the second quarter. Sales increased 7 percent sequentially from $628 million in the first quarter of 2004 and rose by 220 percent from $211 million in the second quarter of 2003, AMD said in its earnings statement.

Meanwhile, AMD's Computation Products Group, which produces its Athlon and Opteron processors, posted revenue of $554 million for the quarter. Processor sales rose 36 percent on a year-over-year basis from $406 million in the second quarter of 2003, but they declined 3 percent sequentially from $571 million in the first quarter of 2004, the company said.

Although its overall processor sales dipped slightly on a sequential basis (PC processor sales usually decline from the first quarter to the second quarter) AMD said demand for its newer Opteron server chips and Athlon 64 PC processors increased during the quarter. Opteron sales benefited from increases in shipments to AMD's top-tier server customers, while consumers snapped up more notebooks with Mobile AMD Athlon 64 processors, the company said.

The average selling price for an AMD processor declined slightly during the quarter, due to lower prices on the company's Athlon XP processors, but average selling prices on newer Opteron and Athlon 64 processors were steady, with Mobile Athlon 64s trending upward, AMD executives said during the conference call.

Citing industry and economic conditions that make it difficult to forecast product demand, AMD said it expects sales of both processors and flash memory to increase "moderately" in the third quarter.

Later, during the conference call, AMD executives qualified the expectation, saying that moderate will equal a good performance and that demand for PCs will remain steady in the second half, thanks in part to notebook sales.

"I believe that the second half will be a good half," Ruiz said. "I think it'll improve over the first half...(and) give us an opportunity for growth. I believe a moderate increase in revenue in one quarter is a good performance."

Prior to its second-quarter report, an average of 22 analysts surveyed by Thompson First Call predicted AMD would report $1.33 billion in revenue in the third quarter.

AMD's outlook is similar to that of rival Intel. Although Intel's second-quarter earnings roughly matched expectations and the company set its third-quarter revenue forecast higher than analysts had anticipated, at a range between $8.6 billion and $9.2 billion, Intel warned that lower selling prices of processors and stronger sales of low price chips will push its gross margins down for the year--from an expected 62 percent to 60 percent. In other words, Intel expects to see revenue increase faster than normal, but profits could lag.

For its part, AMD also says it is on track with a new generation of 90-nanometer processors. It plans to ship them for revenue this quarter.