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Chips sink on Wall St.
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June 24, 1999: 3:24 p.m. ET
Disappointing processor picture persists as shares fall Thursday
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NEW YORK (CNNfn) - Semiconductor shares fell Thursday after the latest round of bad news, this time from Advanced Micro Devices, indicated further pressure on the troubled sector.
Shares of Advanced Micro Devices (AMD) were down 1-3/16 to 17 in late afternoon trading, while chief competitor, Intel (INTC) was 1-1/16 lower at 55-1/2.
Micron Technology (MU) also was suffering Thursday, down 4-1/16 to 39-7/8, along with Texas Instruments (TXN), off 6-9/16 to 132-1/4, National Semiconductor (NSM), down 3/8 to 24-1/4 and Motorola (MOT), down 1-7/8 to 89-5/8.
Companies that make equipment used in the manufacturing of computer chips were hit by the wave as well. Applied Materials (AMAT) fell 3-1/8 to 66-1/4 and Novellus Systems (NVLS) was down 2-1/8 to 64-3/8.
The immediate cause of the sell-off was the after-hours announcement by Advanced Micro Devices Wednesday, in which the company warned Wall Street it expects to lose $200 million during the second quarter, more than three times what Wall Street expected.
The company blamed declining chip prices for the shortfall, a problem that has been hurting many other computer chip manufacturers as well.
Case in point, Micron Technology. As AMD was announcing its problems, the computer memory chip maker reported that its fiscal third quarter losses were $28 million, or 10 cents per share, compared to First Call estimates of a break-even quarter.
One is hard pressed to find much good news among the big names in the semiconductor field these days. Last week, Intel said the production of a 600MHz version of its popular Pentium III chip would be delayed by about two months.
AMD still chasing Intel
Intel's delay could provide an opportunity for AMD, especially since it began shipping its 600MHz competitor, Athlon (formerly K7) on Wednesday, in time for personal computer makers to begin using it for the busy fall/holiday season.
However, even though AMD has been able to develop chips that are as fast -- and sometimes faster -- than Intel's, it has been unable surpass Intel's market share.
In addition, while AMD has been battling Intel at the high end of computer chips, Intel has turned around and been working the lower end market more effectively, according to Larry Borgman, semiconductor analyst at Josephthal, Lyon & Ross.
"In the case of Advanced Micro Devices, the pressures that Intel have brought to bear in the market at the low end have been very difficult for AMD to overcome," said Borgman.
However, despite the lead Intel holds, it has problems of is own, according to Dan Scovel, semiconductor analyst at Fahnestock & Co.
" It`s a question of growth," said Scovel. "In some ways we think that they're a victim of their own success. I mean, when you have already won the war, what do you do next?"
Intel has tried to tackle the problem by moving into other areas. Besides the sub-$1,000 PCs, it is also looking at making chips for communications applications, but that isn't a small task, said Scovel.
Even though Intel's revenues give it solid resources in pursuing the communications market, "We think it may take a little bit of time before they build up their communication business," said Scovel.
The woes of Micron Technology have a different root cause, he said.
Micron, along with other companies in the memory chip business, have been caught off guard by the emergence of Asian firms going into this area. Taiwan has grabbed away business in this area and other Asian firms are poised to do so as well, he said.
Japanese firms Hitachi and NEC announced Wednesday that they are joining forces to combine production of their direct random access memory (DRAM) chips, a struggling chip area which is just now beginning to rise again after prices fell more than 90 percent last year due to overproduction.
The move by the companies could make the next quarter even more difficult for Micron, but for chip makers in general, the upcoming back-to-school and Christmas seasons -- when chipmakers make up for the traditionally slow first half of the year -- should prove to be a pretty good market, Borgman said.
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Advanced Micro Devices
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