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AMD reports smaller-than-expected loss

Intel rival Advanced Micro Devices turns in a smaller-than-expected first-quarter loss, thanks to sequential improvements in processor and flash memory sales.

Advanced Micro Devices on Thursday turned in a smaller-than-expected first-quarter loss, thanks to sequential improvements in processor and flash memory sales.

The chip manufacturer lost $146 million, or 42 cents per share, during the quarter, which ended March 30. Revenue was $715 million. That compares with a loss of $9 million, or 3 cents per share, on revenue of $902 million in the same period a year ago.

But analysts had expected AMD to post a loss of 48 cents a share on revenue of $683 million, according to a survey by earnings tracking firm First Call, matching the company's own first-quarter revenue prediction.

"In a tough market environment and in a quarter that is typically seasonally down, we grew our revenue by 4 percent from the fourth quarter of 2002," Robert Rivet, AMD's chief financial officer, said in a statement. "We believe we gained market share in both our PC processor and flash memory product lines. And we made significant operating improvements that better position us for a return to profitability."

AMD said PC processor sales, which brought in $468 million in revenue, increased by 11 percent from the fourth quarter of 2002. Behind the rise were a bump in sales of mobile processors and an increase in sales of low-priced chips in Asia, particularly in China. Amid these victories, inventories of PC processors fell back into line enough for four weeks or less of production, AMC executives said.

Flash memory sales also increased, rising to $218 million, a hair higher than the fourth quarter's $217 million, the company said. Flash is used to store data in cellular phones and networking equipment.

AMD did not offer an exact revenue target for the second quarter, citing economic conditions that make it difficult to call. But the company said in a statement that processor revenue should be flat or up slightly, while revenue from flash should increase. Meanwhile, costs should decrease to below $800 million, enhancing profitability, the company said.

"We believe that 2003 is going to be a breakout year for AMD," Hector de Ruiz, AMD's CEO, said during a conference call.

Next week, the chipmaker will launch its next-generation Opteron processor for servers, he added.

"The announcement of our upcoming AMD Opteron family is perhaps the most important single announcement in the history of our company. It is the future of AMD, and it's the future of the x86 (PC processor) architecture. We believe it's the future of the computing industry," he said.

Indeed, AMD is looking forward to the second half of 2003, when it will begin shipping the Opteron in volumes large enough to begin booking significant amounts of revenue from it.

AMD is aiming the Opteron at multiprocessor servers, an area where rival Intel dominates. By offering a unique approach that allows the chip to operate in both 32-bit and 64-bit modes, AMD hopes to gain a larger portion of the server market.

It will debut a similar chip, the Athlon 64, for desktop and notebook PCs, in September.

Until then, it will continue to offer its Athlon XP chip to PC makers, while it works to win business for Opteron. A new Athlon XP 3200+ chip for desktop PCs is expected soon.

Analysts said AMD has done a good job of cutting costs and managing expenses. The company embarked on a restructuring plan in October 2002. The plan is designed to lower AMD's quarterly breakeven point and to return the company to profitability in the second half of this year. The plan has included the elimination of about 1,550 jobs.

AMD and Fujitsu also spawned a new joint venture, called FASL, for the development, manufacture and sale of flash memory products. AMD, which owns the majority of the company, says the venture will decrease costs while increasing AMD's ability to reach customers. The arrangement extends a long-term flash memory collaboration between the two companies.

Despite the efforts to cut costs, analysts are still skeptical that AMD will be able to return to profitability without a sizable stream of revenue from shipping a large number of its next-generation chips.

"A more competitive flash memory business will help AMD, as it will Opteron. However, the central issue for AMD has been and will continue to be the competitiveness of the high-volume microprocessor business," wrote Joe Osha, an analyst with Merrill Lynch, in a report published Wednesday.

"We expect an enthusiastic reception for the Opteron server processor when that part launches next week, but even if successful, that part will ramp to volume much more slowly than a desktop or notebook processor," Osha wrote. "We see no evidence that AMD can reverse its overall market share loss to Intel without the desktop and notebook versions of K8 (the Athlon 64)."