From: Reuters
Published December 14, 2007 07:19 PM

AMD delays chip shipments; aims for 2008 profit

By Sinead Carew and Duncan Martell

NEW YORK/SAN FRANCISCO (Reuters) - Advanced Micro Devices Inc <AMD.N> has delayed shipments of a key, high-end microprocessor until the first quarter of next year and does not expect to break even until the second quarter, the chipmaker said on Thursday.

Its shares dropped as much as 6 percent as investors were counting on AMD's server chip, called Barcelona, to win back market share from its far larger rival, Intel Corp <INTC.O>.

AMD, the world's No. 2 supplier of computer processors, has posted four straight quarters of losses as has struggled with chip shipment delays over the last two years -- amid renewed competition from Intel.

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At a meeting with analysts in New York on Thursday, AMD executives apologized for the delays and promised improvements.

"We blew it, and we're very humbled by it," AMD Chief Executive Hector Ruiz said, referring to missed commitments on some quad-core chip products, which have four number-crunching "brains" per processor.

"We're not doing to do that again," Ruiz said.

AMD said a 2.4-gigahertz version of its desktop computer chip, Phenom, would also ship in the first quarter, according to plans announced in November.

Charter Equity Research analyst John Dryden said AMD's product plans will keep it well behind Intel, citing the timing of AMD's Barcelona, Phenom processors as well as the Puma chip for notebook computers.

A design problem with Barcelona has contributed to its travails.

"The return to profitability is delayed and products are delayed across all the platforms," said Dryden, noting that AMD had been aiming for a profit in the current quarter.

The analyst said AMD was delaying product shipments to the biggest computer makers -- including Hewlett-Packard Co <HPQ.N>, Dell Inc <DELL.O>, Sun Microsystems Inc <JAVA.O> and International Business Machines Corp <IBM.N>. "That's pretty big," Dryden said.

AMD, which supplies about one-fifth of the world's computer processors, said it would break even on an operating profit basis at the end of the second quarter and turn an operating profit for the third quarter.

Dryden said investors had hoped for an indication that it would post a net profit for at least some quarters in 2008, but added, "GAAP profitability I wouldn't expect until the second half of 2009."

AMD 'NOT CHANGING ITS TUNE'

Analysts were also disappointed that AMD did not give more details about its "asset-light" strategy to outsource more manufacturing in order to reduce costs.

"The Street has kind of realized that AMD is not changing its tune," said Hans Mosesmann, an analyst with Raymond James. "Some people had hoped they would announce something dramatic in a change to their business model, and they didn't," he added.

The company expects to increase its market share "tremendously" in 2008, and confirmed its outlook for fourth-quarter revenue to be up, in line with seasonal trends.

AMD executives said they will work hard next year to get back on track with shipments.

"We're not happy with our performance in quad-core, not only because it affected our financials, but because it let down our partners and customers," said Mario Rivas, executive vice president for AMD's computing products group.

AMD shares, which have fallen 56 percent this year, fell 29 cents, or 3.2 percent, to $8.68 in afternoon trade on the New York Stock Exchange, where they dropped as low as $8.42.

Intel shares were down 1.14 percent, or 31 cents, at $26.97 on Nasdaq.

(Editing by John Wallace/Jeffrey Benkoe)

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