AMD exec warns of supply shortfall

March 6, 2007 – AMD is struggling to supply microprocessors to distribution processors due to problems related changing its distribution strategy for some new large customers, according to AMD CEO Hector Ruiz, talking to investors at a conference yesterday.

Ruiz also said that AMD’s 1Q sales will fall short of targets ($1.6B-$1.7B), partially due to an ongoing price war with Intel that has reignited after a lull late last year. Ruiz remains “bullish for the company for the year” and is “not in any way disappointed that we have to make some adjustments, according to analyst summaries.

Most analysts are pessimistic on the update. Morgan Stanley noted severe margin pressure from pricing competition as well and lagging product lines awaiting a refresh later this year. Cowen adds that AMD has lost share at some distributors due to “tak[ing] their eye off the ball,” and that achieving targets of 50% gross margins this year “appears increasingly unrealistic.”

JMP Securities is a little less bearish, acknowledging rocky integration with recently acquired ATI and product stagnation as Intel updates its chip product lines, but noting AMD’s new “Barcelona” quad-core server chip and low-power mobile PC processor due mid-2007 should improve the company’s outlook.


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