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AMD soars past 4Q forecasts

Advanced Micro Devices Inc. (NYSE: AMD) finally came through for its investors Wednesday, posting a fourth quarter profit of $65 million, or 43 cents a share, on sales of $969 million.

First Call consensus expected the chipmaker to earn 1 cent a share in the quarter.

The $969 million in sales marks a 23 percent improvement compared to the year-ago quarter when it earned $22.3 million, or 15 cents a share, on sales of $788.8 million.

AMD shares have been on a torrid run of late, surging from a 52-week low of 14 9/16 in April to Wednesday's close of 39 3/4.

Most of the optimism has been based on AMD's high-performance Athlon chip, surging demand for PCs and the inability of chief rival Intel Corp. (Nasdaq: INTC) to keep up with the tremendous demand for microprocessors, motherboards and components.

For the year, AMD lost $88.9 million, or 60 cents a share, on sales of $2.86 billion compared to a loss of $104 million, or 72 cents a share, on sales of $2.5 billion in fiscal 1998.

AMD officials said the upside surprise was a product of strong demand from all its major product units.

"AMD had an outstanding quarter as all of our product groups reported significant growth in sales from the immediate-prior quarter," said CEO Jerry Sanders in a prepared release. "Our results reflected both the seasonal boost in already robust semiconductor demand and the successful achievement of our aggressive goals for the Athlon processor."

Company officials Athlon sales accounted for more than half of the company's $300 million sequential sales growth.

"AMD Athlon processor unit sales surpassed our goal of 800,000 units for the quarter and enabled us to achieve our target of cumulative unit shipments of 1 million for the year," Sanders said in the release.

Total processor unit shipments grew by 35 percent to more than 6 million units, a new record. Processor sales grew by 67 percent from the third quarter and by 1 percent over the previous record set in the fourth quarter of 1998.

"The Athlon makes it a whole new ball game," said Sanders. "We can provide customers with competitive solutions going forward."

The chief said the high-end Athlon processor chip gives AMD a performance product, a high-margin offering that can alleviate pricing pressure. In addition, AMD had strong performances from its flash memory business, which is fueled by cellular phone demand, and communications group.

Strong demand for AMD's high-density, flash memory devices, driven primarily by cellular telephone applications, resulted in record sales of $275 million for its memory group. Sales increased by 33 percent over the third quarter and more than doubled from the year-ago period when it recorded sales of $132 million.

Unit, earnings far above analyst estimates

Not only did AMD top Street estimates by 42 cents a share, but it also blew away analysts' unit and revenue targets by a long shot.

Lehman Brothers analyst Jim Barlage said he was expecting a profit of 6 cents a share on sales of $845 million. He also projected total unit shipments of around 5.1 million.

"The microprocessor business is seasonally strong in the fourth quarter, which will help (AMD's) sequential pattern," Barlage told Reuters ahead of the earnings report. "The market has been quite robust in the fourth quarter."

Piper Jaffray analyst Ashok Kumar, who has never hesitated to knock AMD for its production woes, upgraded the stock earlier this month from a "neutral" rating to a "buy" based on the "near-term trading opportunity."

"The December quarter results and the Gateway design win will be adequate catalysts to take the stock to the overhead supply level of $36," Kumar stated in a report.

Looking ahead

Sanders also had to convince analysts that AMD's recent turnaround was for real. AMD has had strong quarters only to miss the next three because of execution issues.

"We are well aware of your execution concerns," said Sanders, replying to one analyst who questioned whether the good times will last. "We did have execution issues, but the real issue is we didn't have the offering to compete."

AMD said it expects first-quarter sales to be "flat" to "slightly down" from the fourth quarter, reflecting an anticipated seasonal slowdown in the retail sector of the PC market following an exceptionally strong fourth quarter in the sector.

It expects its overall PC processor unit shipments to grow substantially from the comparable period of 1999, but will decline modestly from the record level of the fourth quarter. Unit shipments of AMD Athlon processors are expected to increase, resulting in a richer mix and higher blended average selling price for PC processors.

For the year, AMD expects continued growth in PC sales and in the PC processors that power them, with the distribution of unit demand skewed to the second half of the year as usual.

AMD predicts its communication group sales will grow by 50 percent compared to the first quarter of 1999 and by a mid-single-digit percentage sequentially. The memory group will more than double compared to the first quarter of 1999 and will grow by 10 percent sequentially with demand continuing to exceed supply.

It also expects its total unit sales to exceed the 20 to 25 percent growth projected for the semiconductor industry worldwide.

Last quarter, AMD lost $105.5 million, or 72 cents a share, on sales of $662.2 million.

Its shares peaked at 41 1/4 earlier this month after falling to a low of 14 9/16 in April.

Ten of the 22 analysts tracking the stock maintain either a "buy" or "strong buy" recommendation.

First Call consensus expects AMD to earn $1.10 a share in fiscal 2000.