Advanced Micro Devices may have won some market share during the recent quarter, but its continuing pricing war with larger rival Intel contributed to a $600m loss.
It was the third consecutive quarterly loss for the chipmaker.
Clearly we dug ourselves in the first quarter, said AMD CFO Bob Rivet, on a conference call with analysts yesterday. Hopefully we’re demonstrating that we’re working our way out of that hole…We will improve these results going forward.
Revenue for the quarter beat Wall Street’s average forecasts by growing 13% to 1.38bn from $1.22bn a year ago.
However, average selling prices decreased almost 10% in the desktop market, said AMD chief sales and marketing officer Henri Richard. He said this was offset somewhat by ASPs holding steady in the mobile market and growing in the server space.
AMD will continue to be aggressive in the value market, he said. It will continue to be a very competitive environment, but we are introducing a whole slew of new products…that will afford us some opportunity for, at least, a stable environment.
The company also hopes to deliver on its promised strategy of differentiating itself on technology, and not just on price alone. Chief executive Hector Ruiz talked up the company’s forthcoming Barcelona quad-core server chip, slated for release in August, and its desktop counterpart Phenom, which is expected to ship later this year.
COO Dirk Meyer said AMD would ship Phenom in the fourth quarter, but that’s going to be late enough in Q4 that there will be some contribution to the bottom line, but it won’t be substantial [for the quarter].
Meyer also said the second half of the year would be better for the company, with new products coming online and a higher portion of its products shipped will be made in its newer 65-nanometer manufacturing node. As for the company’s $30m inventory write-off during the recent quarter, We don’t expect that to happen again, Meyer said.
The bulk of that dead inventory was DDR1 memory, whose prices have not fallen in line with that of newer DDR2 products, Meyer said. So it didn’t make sense to push the older DDR1 products…all the products we have now are DDR2 capable, he said.
The inventory write-off was not the only major expense during the quarter. Moreover, the company took a $130m charge relating to its earlier acquisition of graphics chipmaker ATI Technologies. Among that was $78m in integration expenses and $16m in severance charges for cutting about 500 jobs.
Some of that headcount is actually still on the payroll and is working its out way, Rivet said. We will start to yield benefit as we get into the third quarter.
He said the company was in an intertwining balancing act of trying to maintain the appropriate R&D investment while we continue to trim our cost structure. He repeatedly said AMD was not trying to cut its way to success.
There also was the issue of Intel pulling its chipset business out of ATI, now that its chief rival owns it, which saw AMD’s total chipset revenue decline 13% in the quarter. Graphics chip sales of $195m was flat compared to the previous quarter.
Ruiz also was conspicuously quiet about AMD’s ongoing antitrust lawsuit against Intel on yesterday’s call. In previous quarters, since AMD filed the suit two years ago, Ruiz has been keen to update analysts about the progress of AMD’s fight for fair and open competition. Only when asked about his relative quiet on the issue did Ruiz address the law suit. And he was characteristically upbeat. We believe this is something we’re going to win hands down.
A year ago, AMD posted an $88.8m profit, or 18 cents, compared to its $1.09 loss for the recent quarter. Shares in the chipmaker rose more than 4.5% to $16.50 in after-hours trading on the New York Stock Exchange.
AMD these days seems less like the scrappy fighter and more like the straggling smaller rival to Intel. AMD’s move to volume 65-nm manufacturing will certainly boost the company during the second half, but it comes at a time when Intel moves into the smaller, more efficient and cost-effective 45-nm node.
And while AMD continues to chip away at Intel’s market share in the lower-end of the market, particularly with desktops, the price of its continued ASP attack is taking a toll.
Still, AMD touted a new customer win during the quarter with Toshiba. Word on the street is that AMD has at least 35% of Toshiba’s business, but AMD’s Richard yesterday declined to confirm that figure.