| AMD needs to improve its mobile processor lineup if it’s going to grab share from Intel. Photo: AMD. |
Advanced Micro Devices (AMD) server chief Randy Allen was upbeat when we sat down with him at the beginning of the year. Despite the disappointing earnings report the company had issued the day before, he was confident that AMD’s upcoming Barcelona chip would deliver a 40 percent performance boost over the fastest chip available at the time, and that archrival Intel (INTC) would be left in the dust.
Allen was full of confidence. Too full, it turns out. The 2.5-gigahertz version of AMD’s wonder-chip will arrive a little later than the company hoped, and although the company says its performance will improve soon, it’s delivering speeds that are slower than promised.
Meanwhile, Intel’s sales have surged ahead.
It’s against that backdrop that AMD today reported a loss of $396 million, or 71 cents per share, on revenues of $1.63 billion. (Of the loss, $120 million was attributed to charges from the acquisition of ATI.) Shares were up slighly in after-hours trading after rising 3 percent for the day, likely a reaction to AMD’s improved gross margins.
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The earnings results are a sharp contrast from a year earlier, when the company was profitable; in some ways they also fall short of Wall Street’s expectations. Analysts had expected AMD to report a loss of 62 cents per share on revenue of $1.52 billion, according to Thomson Financial.
AMD’s gloomy report also stands in contrast to the results Intel reported Tuesday. Intel’s sales were stronger than expected and its profit margins were healthy, which suggests it feels less pressure to cut prices to keep business from competitors such as AMD.
Not all of AMD’s news was bad. Revenues were 18 percent higher than last quarter and 23 percent higher than a year ago. The company also said gross margins came in at 41 percent. That number was better than the 33 percent AMD reported last quarter, but far below the 51 percent AMD posted in the year-ago quarter.
But the losses suggest AMD is still feeling the pain from its competition with Intel. The best way for a chip company to maintain healthy profit margins is to deliver innovative products that competitors can’t match, and at the moment AMD doesn’t have an exceptionally strong product lineup. It’s likely to remain a tough slog for AMD; a Merrill Lynch report last month estimated that even if prices remain stable, the company would need to pick up three or four points of market share before it will reach profitability again.