AP News, April 20th, 2007
Advanced Micro Devices Inc. had a disastrous first quarter, incurring a loss twice as large as analysts expected. However, investors forgave the struggling chipmaker, sending the company's already-depressed shares higher on signs a fierce price battle with Intel Corp. was waning and management is getting serious about cutting costs.
"Everybody expected AMD to have a terrible quarter _ and if it's terrible, what's two times terrible?" said JoAnne Feeney, senior research analyst with FTN Midwest Securities Corp. "That's water under the bridge. At this point everybody wants to know if this company can become more profitable. And at this point, it seems like the company is saying all the right things."
The market shrugged off the startling news Thursday that AMD lost $611 million, or $1.11 per share, in the first three months of the year. Dragged down by sharply lower microprocessor unit sales and selling prices, the Sunnyvale-based company experienced a deep financial reversal from the profit of $185 million, or 38 cents per share, it pulled in during the same quarter a year ago.
Sales for the recent period were $1.23 billion, a 7 percent decline from the $1.33 billion AMD rang up a year ago.
Though expectations varied wildly, analysts were expecting AMD to lose, on average, 48 cents per share on $1.26 billion in revenue, according to a survey by Thomson Financial.
Relentless price cuts by Intel and AMD have cut deeply into both companies' profit margins. However, Intel has been better able to weather the fight _ its cash horde is almost seven times the size of AMD's, and its market value is nearly 16 times larger.
"The first quarter of 2007 was a terrible start to the year," Robert Rivet, AMD's chief financial officer, said on a conference call with analysts. "But we are confident we have a plan to put us back on the right track."
Rivet said the company is aggressively addressing the issues that caused the quarter's significant revenue decline and said customers remain confident in AMD's strategy, products and technology roadmap.
Despite the miss, AMD's slumping stock price surged on signs the price battle is easing and AMD is willing to outsource some of its chip-making duties to outside factories to cut costs. CEO Hector Ruiz also said the company is weighing a variety of options to raise money and would not necessarily be opposed to a private-equity deal if it made sense for shareholders.
Before the results were released, AMD shares rose 37 cents, or 2.7 percent, to close at $14.28 on the New York Stock Exchange. In after-hours trading, the stock gained 22 cents on the optimistic commentary by AMD management.
As part of an evolving restructuring plan, AMD said it would cut 500 jobs, or about 3 percent of its 16,700 employees, by the end of the year through attrition and performance evaluations. By comparison, Intel currently has 92,000 workers after completing a massive restructuring that eliminated about 10 percent of the Santa Clara-based company's worldwide work force.
Intel reported Tuesday that its first-quarter profits surged 19 percent as the company benefited from a big tax windfall and lower production costs because of its speedier transition than AMD to a new chip-making process.
AMD's $5.6 billion acquisition of graphics chips maker ATI Technologies Inc., which investors have seized on as a questionable and expensive takeover, continued to weigh on AMD's finances.
AMD recorded $113 million in charges during the recent quarter related to the ATI acquisition, bringing down net income by 21 cents per share. AMD also took $28 million in charges for employee stock-based compensation expenses, which further reduced net income by 5 cents per share.
A high-flier just a year ago, AMD's stock has plummeted as a resurgent Intel has stolen back market share and forced AMD to cut deeply into its own profits with equally severe price cuts to try and sustain its hard-won gains.
AMD's stock, which was trading above $30 the same time last year, has lost more than half its value since then, wiping out more than $7 billion in shareholder wealth.
