AMD profits but fails to dazzle in Q4

A design problem leading to more chips than the company would have liked coming off the production line with clock speeds of less than 350MHz drove down chip-maker AMD's revenues and profits in Q4. Although strong sales of its K6-2 PC chips helped the company post record revenues for its fourth fiscal quarter, although earnings fell short of analysts' expectations. AMD's revenues for the quarter were US$788.8 million, up 29% from a year ago.

Advanced Micro Devices (AMD) said strong sales of its K6-2 PC chips helped the company post record revenues for its fourth fiscal quarter, although earnings fell short of analysts' expectations.

AMD's revenues for the quarter, ended Dec. 17, 1998, were US$788.8 million, up 29 percent from a year ago. Net income was $22.3 million, or 15 cents per share, compared to a net loss of $12.3 million, or nine cents per share, in the same quarter last year.

Egged on by strong PC sales in the latter half of 1998, analysts bullishly predicted the company would post a profit of 18 cents per share for the quarter.

AMD blamed the shortfall on a design problem, which led to more chips than the company would have liked coming off the production line with clock speeds of less than 350MHz. Those chips command lower selling prices and are sold into the more competitive low-end market, which drove down AMD's revenues and profits.

AMD had hoped more than 50 percent of its K6-2 chips would come off the production line at 350MHz or above; as it turned out that figure was only 34 percent, Jerry Sanders, AMD's chairman and chief executive officer, said during a teleconference call.

"We've got that problem behind us now, and we have a high level of confidence we'll be able to improve the (speed) mix this quarter," he added.

AMD's K6-3 processor, formerly known as Sharptooth, will be introduced formally this quarter with volume shipments starting in the second quarter, Sanders said. AMD is shooting to launch that chip at 450MHz, he said.

The K-7 will be introduced late in the second quarter, meanwhile, and will likely be introduced at 500MHz or above, Sanders said. AMD hopes to use the K-7 to expand outside of the consumer/small business market and sell products into enterprise markets, where rival Intel Corp. holds sway.

AMD's results come a day after Intel reported fourth-quarter earnings of $1.19 per share on revenues of $7.6 billion, handily beating the consensus analyst estimate of $1.07 per share.

If Intel has anything to do with it, AMD's year won't work out as planned. In a conference call yesterday Intel executives said they will work aggressively to recoup ground lost to AMD in 1998 in the U.S. retail market -- even if that means dropping average selling prices.

AMD's revenues for the full year were $2.5 billion, also a record for the company and an improvement on 1997 revenues of $2.4 billion. However, AMD reported a net loss for 1998 of $104 million, or 72 cents per share, compared with a loss of $21 million or 15 cents per share in 1997.

All of its growth in the quarter came from sales of its microprocessor products, AMD said. Sales of other products were flat sequentially, and will likely remain so until the second quarter, Sanders said.

AMD, in Sunnyvale, California, can be reached at +1-408-732-2400 or at http://www.amd.com/.

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