AMD stock tumbles on earnings hit

NEW YORK (CNNMoney.com) -- AMD reported Tuesday that earnings were down substantially in the fourth quarter of 2006, as the company's chip price war with Intel took a toll on its profits.

Shares declined 4.2 percent to $16.79 in after-hours electronic trade.

Sunnyvale, California-based Advanced Micro Devices reported earnings of 1 cent per share, compared to the 10 cents per share expected by analysts. The fourth-quarter earnings figure is a decline of 98 percent compared to the 21 cents per share in the year-ago period.

The company reported a net loss of $1.08 per share, including $1.04 per share from the acquisition of ATI and 5 cents per share for employee stock-based compensation.

AMD reported revenues of $1.77 billion, down 3.5 percent from $1.84 billion in the year-ago period. Analysts had expected revenues of $1.74 billion.

The company said crucial gross profit margins fell more than 10 percent - to 36.1 percent from 46.4 percent in the year-ago period.

Server margins were especially hard hit, said the company's chief executive.

"All of our issues in pricing were related to the server segment," CEO Hector Ruiz told investors on the earnings call. "We're making plans to adjust to that for at least the first two quarters of the year. We think that will begin to change as we introduce our new architecture in the summer."

He said that the company's chips for desktop computers and laptops did not see a similar price decline.

Server chips previously made up around 40 percent of AMD's profit, but that will decline in the future, says an analyst.

"We see servers as a window of opportunity that has shut," said Ashok Kumar, an analyst with Raymond James & Associates. "I think that AMD had a shot at it, but Intel clearly gained ground there."

AMD also narrowed first-quarter '07 guidance Tuesday, projecting earnings of between $1.6 billion and $1.7 billion.

Kumar said that the next two or three quarters look tough for AMD, but the company's long-term prospects were better.

"Near-term, the company has balance sheet stress from the ATI acquisition and margin pressure from Intel," he said. "Beyond that, it will revamp its line of notebook chips, which makes the outlook much more promising."

On January 12, AMD warned that it expected revenue growth of only 3 percent between the third and fourth quarters, lower than its typical 8 to 10 percent growth between those quarters, sending shares down 9.5 percent in that session.

Rival Intel (Charts) announced earnings on January 17, reporting net income off 39 percent and revenue down 5 percent. Investors were disappointed by the company's margin projections, and sent the stock down.

AMD started becoming more competitive with Intel in 2003, but Intel has moved ahead, shipping a raft of new products in 2006 that damaged AMD's position.

Shares of AMD (Charts) closed down 0.1 percent at $17.51 Tuesday on the New York Stock Exchange.

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