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AMD to miss 3Q targets
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October 5, 2001: 2:09 p.m. ET
Chip price war will increase losses, cut revenue beyond earlier guidance
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NEW YORK (CNNfn) - Advanced Micro Devices warned Friday it will record a wide third-quarter loss, its bottom line hit hard by an intensifying pricing war in the market for personal computer microprocessors.
AMD (AMD: down $0.16 to $8.84, Research, Estimates) runs a distant second to Intel in PC processor sales, with roughly 20 percent of the market. Still, its Athlon and Duron chips recently have been posing a much greater competitive threat to Intel.
While the two companies have been locked in a pricing war for several quarters, Intel, which is much larger and has deeper pockets than AMD, became much more aggressive in the third quarter, stepping up production of its high-end Pentium 4 processors and pricing them to move.
When they reported second-quarter results in July, AMD executives warned that the price competition could result in operating losses during the third quarter. Late last month, the company announced plans to close two of its manufacturing plants and cut roughly 2,300 jobs amid continued slack demand.
Early Friday, AMD said its loss for the third quarter, excluding restructuring charges and other one-time items, will be between 26 and 31 cents per share.
Prior to the company's announcement, analysts generally had expected AMD to record a third-quarter loss nearer 12 cents per share, according to a survey conducted by earnings tracker First Call.
AMD said quarterly sales were about $766 million, down 22 percent from second-quarter sales of $985.3 million. The Street generally had expected third-quarter sales to come in at roughly $824.7 million, according to the First Call survey.
Despite the earnings and revenue shortfalls, AMD said the volume of its microprocessor shipments in the third quarter had held up from record levels in the second quarter, when the company sold 7.7 million of them.
The company said sales of flash memory chips fell about $100 million from second-quarter levels, but that was in line with earlier guidance. Flash memory is used for easy and fast information storage in digital cameras, home video game consoles and other devices.
AMD's announcement was the latest warning of a shortfall among high-tech companies recently, some of which have been in the PC industry.
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Late Thursday, PC maker Gateway (GTW: up $0.14 to $4.99, Research, Estimates) warned of a much wider-than-expected quarterly loss, pinning the blame squarely on the Sept. 11 terrorist attacks. Executives of Gateway said demand before Sept. 11 had been tracking according to expectations and now has returned to normal levels.
On Monday, Compaq Computer (CPQ: down $0.42 to $8.43, Research, Estimates), which ranks No. 2 in global PC sales and has agreed to be acquired by Hewlett-Packard, warned of a wide earnings miss, blaming it in large part on supply-chain management disruptions in the wake of the terrorist attacks.
Meanwhile, Dell Computer, the No. 1 PC supplier, stood by its previous financial targets, its executives saying there had been very little disruption to their supply chain as a result of the attacks. They also said production and demand rebounded more quickly than expected and they are winning new customers at a rapid rate.
AMD made no mention at all of the Sept. 11 attacks. The company is scheduled to report its third-quarter results Oct. 17. 
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