AMD Dashes Hopes on Revenue Projections for Q1

Published: April 9, 2007

by Timothy Prickett Morgan

Chip maker Advanced Micro Devices sent a shock to Wall Street today when it put out a statement that it would not make the consensus estimates for revenues in its first quarter of 2007.

The company's stock didn't get much of a bump late last week, when AMD announced 3 GHz dual-core Opteron parts and said that it could get these chips revved up to 3.2 GHz before getting the quad-core "Barcelona" Opteron processors to market. The Barcelona Rev F chips are true quad-core processors, meaning that they have integrated caches and have all four cores on a single piece of silicon, as opposed to quasi quad cores, like IBM's Power5+ QCMs and Intel's "Clovertown" Xeon 5300s. Both of these chips package two dual-core chips into a single CPU socket, and force them to share a single bus. AMD contends that on benchmark tests, it can beat Intel chips, and the IT trade rags (including this one) duly reported the tests that AMD and Intel have run. Oddly enough, showing the competitive pressure only hurt AMD's share price, and it hit a 52-week low of $12.60 a share.

But this morning, when AMD said that it would only hit $1.225 billion in sales in the quarter because of sharp revenue declines in its computing solutions segment, Wall Street began to get the jitters and at the same time was elated that AMD used the two C-words--cost cutting. And the company's share price rose by nearly 4 percent. AMD's stock price was sitting at $36 a year ago, and was cresting at well above $40 a share in January 2006. That was when Intel came up with the Core 2 architecture and started getting its chip house in order. And now, a lot of air has come out of AMD's market capitalization as the price and technology war between the two has ensued.

This is the second warning AMD has put out about this quarter. In March, the company said that it could not hit between $1.6 billion and $1.7 billion in sales, a target it had set late last year, and over the ensuing weeks, Wall Street ratcheted down expectations to $1.55 billion.

This is the statement that got Wall Street so excited, even on bad news: "AMD plans to restructure its business model to increase operational efficiencies and lower its operating cost structure. AMD will reduce 2007 capital expenditures by approximately $500 million, which the company believes will not materially impact capacity plans for the year. AMD will also significantly reduce discretionary expenses and limit hiring to critical positions."

Intel has similarly had to cut about $2 billion out of its cost structure to remain competitive. So this isn't just happening to AMD.

AMD will report its first quarter results on April 19, and at that time it will detail the restructuring it plans to do to cut costs and boost profits.

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