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AMD warns of 2Q loss
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June 23, 1999: 6:23 p.m. ET
Chipmaker says aggressive pricing from Intel will result in $200M loss
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NEW YORK (CNNfn) - Advanced Micro Devices Inc. stunned investors Wednesday, warning it expects to report a $200 million second-quarter operating loss due to a sharp decline in the average selling prices for its line of chips for personal computers.
The loss, almost 3-1/2 times what Wall Street had expected, is the latest in a series of missteps for the company as it struggles to compete with arch-rival Intel Corp. (INTC)
"The revenue generated for microprocessors is extremely disappointing," W.J. Sanders, AMD's chairman and chief executive officer said in a conference call with financial analysts. "We lost some business … where we deemed it imprudent to match Intel's price."
Sanders said the company expects to report second-quarter revenue of less than $600 million.
Another quarter, another warning
The earnings warning marks the second consecutive quarter in which AMD (AMD) has faced problems due to falling chip prices.
AMD said it expects to take the loss despite "substantially higher production" of its AMD-K6 family of microprocessors and a wider mix of higher-speed models.
The Sunnyvale, Calif.-based company said that while it expects to produce more than 6 million K6 chips, it is unlikely to sell more than 3.7 million units in the quarter. AMD shipped 4.3 million K6-2 chips in the first quarter.
While the operating loss will be offset by a pre-tax gain of more than $400 million on the recently concluded sale of Vantis, AMD's programmable logic subsidiary, Sanders called the operating results "a bitter disappointment."
Analysts polled by First Call had expected AMD to lose 40 cents per share in the quarter ending June 27. Given the 147 million shares outstanding, the revised expectations means that the second-quarter operating loss would be roughly $1.36 per share when it reports the results on July 14.
Looking forward to K7 chip
Sanders added that the company expects to garner "several million dollars" in revenue from advanced shipments of its next-generation Athlon (or K7) processor, which the company began shipping to computer makers Wednesday.
"Our ASPs [average selling prices] took a beating," he said. "They will be in the low $60 range, significantly down from the $78 average selling price in the first quarter. We need the higher margins of the K7 to return to profitability."
Though Sanders declined to comment on what AMD expects the average selling price for the K7 chip to be, he said the company anticipates a "dramatically higher price" for the new processor.
AMD priced the 600-MHz K7 chip at $699 in 1,000-unit quantities. The company priced the 550-MHz model at $479 and the 500-MHz K7 at $324.
"While the K7 is priced substantially below Intel's Pentium III, it's significantly higher than we've ever charged before," Sanders said.
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Advanced Micro Devices
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