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Analysts expect deep loss from AMD

AMD has grand long-term plans for extending its chip architecture, but more immediate obstacles have left the company with gloomy financial predictions.

AMD has grand long-term plans for extending its chip architecture, but more immediate obstacles have left the company with gloomy financial predictions.

This afternoon, the Intel rival is expected to report a loss of 97 cents per share for the most recent quarter, according to financial analysts surveyed by First Call. That loss would be considerably greater than the 1 cent per share profit from the same quarter a year ago, but not as deep as the $1.10 loss posted last quarter.

But AMD has the potential for greatness, analysts say.

Yesterday, AMD unveiled plans to take on Intel's upcoming 64-bit Itanium chip by extending the current "x86" chip architecture instead of following Intel's plan of starting afresh. Though analysts are cautious about AMD's ability to pull off such a grand plan, several at this week's Microprocessor Forum noted that AMD could clean up if Intel's Itanium plan stumbles. The Itanium, formerly code-named Merced, is due in mid-2000 and is the first in Intel's family of high-end "IA-64" chips.

AMD's current high-performance Athlon chip, which has beat out current Pentiums from Intel, could fill current demand, while its new "x86-64" chips in 2001 could step in if Itanium flops.

Another change that could help AMD is a possible deal with Motorola in which AMD could use its new Dresden, Germany, chip factory to build Motorola G4 chips. That deal would follow one AMD announced more than a year ago under which Motorola builds AMD's Athlon chips, formerly called K7s.

Using AMD facilities also would help out Motorola, which has been unable to meet Apple's demand for new G4 chips.

Making Motorola chips makes sense: Through a technology-swapping deal, the two companies expect to have identical chipmaking technology.

Merrill Lynch analyst Joe Osha said that regardless of what happens with Motorola, AMD needs to find a use for the capacity of the Dresden facility. AMD is scaling back its K6 production, but the replacement Athlon chips aren't being made in the same quantities.

"The question is: How are they going to meet their capital utilization needs with K6 ramping down?" Osha said.

Osha expects that AMD's chip shipments will stay level at about 5 million for the most recent quarter.

BancBoston Robertson Stephens analyst Dan Niles predicted that this quarter, AMD will report sales of about 200,000 Athlon chips. Next quarter, he and Osha both estimate that number will rise to about one million. However, Osha believes that only tens of thousands of those will run at the most recently announced 700-MHz speed, Osha estimated.

The Athlon is an important part of AMD's financial plans, since it's aimed at high-end computers and therefore has higher profit margins than the lower-end K6 chips. Athlons running at 750 MHz are expected in the first quarter of 2000, Niles said, and AMD chips with faster copper technology should arrive by the end of 2000.

Intel isn't standing still, though. It's expected to counter with its new "Coppermine" Pentium III chips on October 25, chips that will use Intel's new 0.18-micron manufacturing technology and come with more higher-speed memory.

Intel lost market share in the low end of the market to AMD and other competitors in 1998, said Microdesign Resources analyst Keith Diefendorff. But Intel was unwilling to lose market share. It slashed prices on its low-end Celeron chips and reversed the market share decline.