AMD Reports $600 Million Second-Quarter Loss

Advanced Micro Devices on Thursday reported it's still in the red, losing $600 million in the second quarter as it struggles to make a comeback against larger rival Intel.

The loss, which amounted to $1.09 a share, included $130 million in charges that included a portion of the cost of the ATI Technologies acquisition and integration, employee-stock-based compensation expense, and severance and debt issuance charges. AMD bought graphics chipmaker ATI last year. In the second quarter of 2006, AMD reported a net income of $88.9 million.

AMD has posted losses for three consecutive quarters. In the fourth quarter of last year it lost $573.8 million. In the first quarter, it was in the red $611 million.

But revenues were brighter. For the second quarter ended June 30, sales rose to $1.4 billion, compared with $1.2 billion a year ago. But gross margins fell to 34% from 57% year-over-year, a reflection of aggressive price-cutting against Intel, which has released a slew of new products this year. AMD's gross margin, which was 3 percentage points higher than in the first quarter, included a $30 million write-off of older microprocessor inventory.

Robert Rivet, AMD chief financial officer, said the company increased revenues by 12% from the first quarter and had a 38% quarter-to-quarter increase in microprocessor unit shipments, indications AMD is regaining its footing. AMD also got some help in the second quarter from Toshiba, which chose the company as the chip supplier for the computer maker's new series of Satellite notebooks.

During a teleconference with financial analysts, Dirk Meyer, president and chief operating officer of AMD, said, "Our bottom-line results are obviously unacceptable." Meyer, however, said the company was on track to break even in the fourth quarter.

AMD expects its quad-core Barcelona processors, due out in August, to drive revenue in the second half of this year. The chips will come in at the high end of AMD's Opteron server CPU family, and is being touted as the industry's first "native" quad-core processor. Intel's quad-core products are two integrated dual-core chips. Intel, which introduced its quad-core chips last year, has been releasing a slew of new desktop, server and mobile-computer products, while dropping prices on older models. Besides keeping pressure on AMD, the strategy has also taken its toll on Intel. The company on Tuesday reported a 44% jump in profits to $1.28 billion, but lower-than-expected gross margins. Revenues increased 8% to $8.7 billion.

Meanwhile, market researcher iSuppli reported Tuesday that AMD managed to stabilize its market share in the second quarter, following six months of losses to Intel. The firm estimates that AMD accounted for 11.4% of worldwide microprocessor sales, up half a percentage point from the first quarter. AMD's market share had fallen to 10.9% in the first quarter from 16.8% in the third quarter 2006.

Intel, meanwhile, lost a half-point in the second quarter, falling to 80.3% from 80.8%. The drop ended a major resurgence in market-share during the prior two quarters, iSuppli said.

A strong worldwide PC market helped sales for AMD and Intel. Gartner has said PC shipments were up 11.7% in the second quarter, and rival International Data Corp. has pegged the increase at 12.5%.

AMD provided few details in its third-quarter forecasts, saying it expects revenue "to increase in line with seasonality."