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AMD's Loss Widens, Sales Flat

The big loss reported in the quarter was primarily because of more than $1.68 billion in charges related to the company's ATI graphics business.
Advanced Micro Devices on Thursday reported that its losses widened in the fourth quarter to $1.77 billion, mostly because of charges related to the 2006 acquisition of graphics chipmaker ATI Technologies.

AMD said net losses for the quarter ended Dec. 29 was nearly triple the loss reported during the same period a year ago. In the fourth quarter of 2006, the chipmaker reported a loss of $576 million. Revenue was flat at $1.77 billion for both quarters.

For the fourth quarter of 2007, AMD reported an operating loss of $1.68 billion, compared with $529 million a year ago. It was AMD's fifth quarter loss in a row. The company, however, managed to improve its gross margin to 44% from 36% a year ago, and 41% in the third quarter of 2007.

AMD's rival Intel, however, has done much better in wringing profits from chips. The company reported Tuesday that its gross margin in the fourth quarter of last year was 58.1%.

The big loss AMD reported in the quarter was primarily because of more than $1.68 billion, or $2.89 a share, in charges related to digesting the $5.4 billion acquisition of ATI. If the charges were not included in the results, the company would have been close to break-even operationally for the fourth quarter, reducing the operating loss to $9 million, CFO Robert J. Rivet said.

"We improved gross margin by three points sequentially, driven by increased shipments of new products, higher average selling prices, and cost-containment actions," Rivet said in a statement. "We shipped a record number of microprocessor units in the quarter, including nearly 400,000 quad-core processors."

During a conference call with financial analysts, AMD executives said they were confident that the company would return to profitability in the second half of the year, driven primarily from new products, including the introduction of the company's first 45 nanometer microprocessors.

The manufacturing process used in building the chips shrink the size of the transistors to 45nm, which means more transistors on each processor and therefore more power at the same level of energy consumption. Intel has been shipping 45nm processors since the fourth quarter of last year.

Because of new product introductions, AMD predicted its gross margins would improve throughout the year to as much as 50%. "Our plan is predicated on new products across the board," Rivet said. "New product is the key to gross margin expansion."

Company executive said the company was also on target to deliver its next-generation Turion notebook platform, codenamed Puma, which would compete with Intel's Centrino-branded products. Puma is expected to be available in high-end notebooks in mid-2008. The package is comprised AMD's 64 X2 dual-core "Griffin" processor and a new mobile chipset, called the RS780.

AMD is focused on improved energy consumption on Puma. To do that, the chipmaker plans to place the two cores in Griffin on separate power planes, so they can be managed independently. If a job requires only one core, for example, the other can be placed on idle.

Dirk Meyer, president and chief operating office, told analysts that the Puma platform has been the company's most successful in terms of design wins with notebook manufacturers. "It's getting designed in (to product) pretty quickly," he said.

Meyer also assured analysts that a bug that had caused production delays in AMD quad-core server processors had been corrected and the fixed chips would be available in volume in the latter part of the current quarter. "We have high confidence that we're ready to go," he said of the chips.

Although the global economy could see some slowing this year, the company remained confident that the demand for processors would remain strong, given their importance in driving the computer systems in business and government. In addition, growth in emerging nations such as China and India has been so strong, that even a slowdown would still leave a reasonable growth rate for the year. "At this point in time we haven't seen anything (related to a downturn)," Ruiz said.

AMD reported that overall microprocessor shipments in the fourth quarter increased by 7% over the previous quarter. A significant increase in demand for quad-core Opteron chips drove overall server processor shipments up 22% sequentially.

While AMD continued to get indigestion from the ATI acquisition, Intel had its own problems. The company posted a 51% rise in quarterly net income in the fourth quarter, paced by brisk sales of its microprocessors used in notebook PCs, but gave a forecast that lagged some analyst estimates.

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