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New products help absorb AMD pain

A new mobile chip and flash memory hit retail shelves, but times are tough for the chipmaker. After two warnings, AMD will report earnings Wednesday.

Advanced Micro Devices turned out two new chips Monday, but its most anticipated release this week will be its second quarter results.

As expected, AMD launched on Monday a new mobile Athlon XP 1800+ chip for notebooks. The company also announced Monday it has begun shipping MirrorBit, its newest flash memory product for storing data in cell phones and other devices.

AMD's mobile 1800+ will run at 1.53GHz, a 66MHz boost over the 1.47GHz mobile Athlon XP 1700+, making the new processor the company's fastest mobile product. AMD introduced the mobile Athlon XP in April.

Separately, AMD will release second quarter results on Wednesday. The company's numbers will come in considerably lower than originally expected, owing to weaker-than-anticipated sales related to key areas such as consumer PCs in the United States and Europe.

AMD alerted investors in June that its quarterly revenue would fall below expectations. It originally forecast revenue of $820 million to $900 million but then revised that figure downward to between $620 million and $700 million. On July 3, AMD revised its expectations downward again, saying it would report revenue of about $600 million for the quarter.

Analysts expect AMD to lose 45 cents per share on revenue of nearly $605 million, according to First Call.

Credit Suisse First Boston downgraded AMD's stock on Monday to "hold" from "buy," citing uncertainty about AMD's near-term profitability.

The chipmaker hopes to get back on track with the two new chips and with new packaging that will help the mobile Athlon XP chip enter other segments of the mobile market.

The 1800+ chip will find its first home in a new Pavilion ze1250 notebook from Hewlett-Packard. The new Pavilion will pair the chip with a 15-inch screen, 512MB of RAM, a 30GB hard drive, and a combination CD-rewritable/DVD drive. It will sell for $1,799 before rebates, according to HP's Web site.

Meanwhile, AMD has begun shipping MirrorBit flash in large quantities. The memory offers twice as much storage capacity in the same space as previous AMD flash memory. MirrorBit stores 2 bits of data per cell--flash memory's smallest unit of data storage--instead of 1 bit.

By increasing the amount of storage per cell, AMD says it can offer flash memory that holds more data and can sell it for a competitive price. Makers of cell phones, personal digital assistants and other consumer electronics goods can use MirrorBit to offer more complicated operating systems or a greater number of applications without hiking prices.

MirrorBit also puts AMD in a more competitive position with rival Intel's StrataFlash flash memory technology.

Flash memory is the chipmaker's lesser known, but similarly lucrative, product category.

Part of the company's financial woes of late have actually come from declining revenue from flash memory, due to the slowdown in the communications market and sagging sales of cell phones. While AMD's unit shipments of processors reached record levels in the first quarter, flash memory revenue declined to $160 million from $411 million in the same quarter a year earlier.

AMD will look to MirrorBit and new Athlon chips to help mount a recovery in the second half of the year and into 2003.

The chipmaker has said that it plans to introduce several more Athlon XP chips for notebooks and desktops throughout the rest of this year.

AMD is eyeing so-called thinner and lighter notebooks as a new opportunity for its mobile Athlon XP. Notebook chips are typically more profitable than desktop chips, because of the premium price associated with mobility.

AMD has developed a smaller, thinner package than it currently uses to affix its mobile Athlon XP to a motherboard inside a notebook. The new package--along with the fact that the new chip consumes about 25 percent less power than AMD's older Athlon 4 mobile chip and produces less heat as well--will allow the 1800+ to be used in thinner and lighter notebooks.

Currently, the mobile Athlon XP is found in full-sized notebooks, which typically weigh 6 pounds to 8 pounds. The new Pavilion ze1250 is a good example, weighing in at 6.6 pounds and measuring 1.4 inches thick.

The new package will let manufacturers fit the mobile Athlon XP into so-called thin-and-light notebooks, which generally fall in the range of 3 pounds to 5 pounds, according to AMD.

AMD has already begun shipping mobile Athlon XP chips in the new package in small quantities and will announce the package by the end of the year, the company has said.

AMD will sell the mobile Athlon XP 1800+ for $335 in quantities of 1,000 and the 64-megabit MirrorBit for $7.95 in quantities of 10,000.