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AMD posts 3Q loss
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October 6, 1999: 9:13 p.m. ET
Chip manufacturer's sales slip 3 percent, but results still beat Street estimates
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NEW YORK (CNNfn) - Advanced Micro Devices Inc. posted a smaller-than-expected loss Wednesday, reflecting strong sales of its new Athlon chip and flash memory chips.
Separately, the company announced it had hired investment banking firms Donaldson, Lufkin & Jenrette and Salomon Smith Barney to find a buyer for its communications group.
The Sunnyvale, Calif.-based chip maker posted a loss of $105.6 million, or 72 cents per share, for the three months ended September 26, substantially less than the 97-cent loss expected by analysts.
AMD earned a profit of $1 million, or 1 cent per share, in the same period last year.
Net sales fell 3 percent to $662.2 million, despite strong increases in the company's new Athlon processors and flash memory products. Removing the sales of Vanis Corp., the programmable logic subsidiary sold during the previous quarter, operating revenues rose 1 percent year-over-year.
Sales of AMD flash memory chips jumped 28 percent over the preceding quarter, with demand for the chips outstripping the company's ability to supply them even while it boosts production.
"It was better than consensus, but the thing that was driving it was flash,'' said Jack Geraghty, a Gerard Klauer Mattison & Co. analyst.
The company also surprised analysts with an announcement that it plans to sell its communications business - which has about
$300 million in revenues a year, a move to generate more cash for the money-losing chip maker.
"Obviously, this company is having big problems,'' said Drew Peck, an SG Cowen & Co analyst. "It's cash flow negative. They are now at the point where they are selling off pieces of their business to subsidize the remaining piece. All their eggs are in one basket.''
That basket is the microprocessor business, where AMD is fighting it out with Intel, the dominant player with over 80 percent of the world PC market.
AMD shipped a total of 4.5 million microprocessors in the quarter, up from 3.7 million units in the second quarter.
Company officials said they shipped approximately 200,000 motherboards featuring the company's new Athlon chip at a price of around $300 and produced higher margins than AMD's older K6 processors. The average selling price of the K6 chip was $67 during the second quarter.
But company officials said Athlon sales were stymied by the massive earthquake in Taiwan near the end of the quarter. The company actually produced about 350,000 Athlon motherboards, about 150,000 less than what company officials said they generally expect during the first quarter production of a new product.
The Athlon, which was introduced in early August, is AMD's foray into higher-end PCs and the company's best chance to compete with arch-rival Intel Corp. (INTC).
W.J. Sanders, AMD's chairman and chief executive, said AMD is hoping to ship roughly 800,000 motherboards during the fourth quarter, but warned that number could come down if earthquake damage in Taiwan proves more severe than first believed.
Previously, company officials said they hoped to ship one million Athlon processors during the fourth quarter.
"All things considered, we think at this point and time that we will have enough motherboards to meet our goal," Sanders said. "But we're heavily dependent on what happens" in Taiwan.
Company officials said they are hopeful fourth quarter revenues can exceed $800 million, allowing them to pull closer to the elusive break-even figure. But they acknowledge that goal will be elusive given the earthquake ramifications and AMD's ongoing price war with arch-rival Intel Corp.
"This is a very tough goal," Sanders said. "In the face of possible declining sales because of the Taiwan earthquake it remains just that, a goal."
AMD's Communications Group, which includes operations that provide integrated chips for telecommunications applications and data communications, employs roughly 400 people and produced aggregate revenues of roughly $70 million during the third quarter.
Company officials said they hope to complete the sale of the division by the third quarter of next year.
Sanders said selling the unit will allow AMD to concentrate more closely on its flash memory and Athlon products. He said the company had no current plans on how it will use the cash proceeds from the sale, other than for general corporate purposes.
AMD (AMD) shares closed up 13/16 to 19-7/16 in trading Wednesday. 
-- from staff and wire reports
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Advanced Micro Devices
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