AMD posts $611 million loss

IDG News Service - For the second straight quarter, Advanced Micro Devices Inc. (AMD) posted a loss, saying Thursday that it lost $611 million in its chip manufacturing business during the first quarter of 2007.

Wall Street analysts had expected bad news, since AMD warned them on April 9 that it would miss its revenue forecast of $1.6 billion to $1.7 billion. In response, the average earnings estimate was for a loss of $0.48 per share on revenue of $1.26 billion, according to Thomson Financial.

In reality, AMD came in far below that, reporting a loss of $1.11 per share on revenue of $1.23 billion for the quarter ending March 31. For comparison purposes, AMD's loss was $0.90 per share, excluding $113 million in expenses used to acquire ATI Technologies Inc. and integrate that graphics processing company into AMD's business, Thomson said.

The loss was also far below AMD's performance in the first quarter of 2006, when it earned profit of $185 million on revenue of $1.33 billion. However, AMD warned analysts not to compare the two figures, since the company began including ATI's revenue in its numbers in October 2006.

AMD blamed "significantly" lower microprocessor unit shipments and lower selling prices for the loss. In recent months, AMD has been in a price war with rival Intel Corp.

In response to the "disappointing and unacceptable" results, AMD Chief Financial Officer Robert Rivet said in a statement that the company would realign its business model to cut costs. In its warning to analysts, the company had promised to cut its 2007 capital expenditures by $500 million and limit hiring to critical positions.

AMD will now expand that recovery plan, slashing discretionary spending by $100 million annually and making further cuts in hiring. "We plan to leave the year with a lower head count than we have now," Chief Operating Officer Dirk Meyer said in a webcast with investors. He declined to say whether that statement was a hint about pending layoffs.

The other part of AMD's plan is to redouble its efforts to launch the upcoming Barcelona quad-core Opteron chip on schedule. "We know we cannot cut our way to prosperity," Meyer said. The company began shipping preproduction samples of the new chip to computer vendors during the first quarter and plans to ship production samples in the second quarter, allowing vendors to launch both desktops and servers using Barcelona chips in the third quarter.

Finally, AMD CEO Hector Ruiz said he would form an executive task force with his management team to consider larger issues, such as moving AMD offices to different locations or finding new investors. Asked about rumors that private equity firms could purchase an interest in the company, he said he would explore any funding source that didn't cramp his long-term goal of winning more market share from Intel and bringing more competition to the processor marketplace.