January 15, 2007 – Feeling the effects of an entrenched price war with rival Intel, Advanced Micro Devices Inc. (AMD) said that 4Q revenues and operating profits would fall well short of analysts’ estimates and 3Q levels.
Revenue (excluding sales related to recently acquired ATI) are expected to rise just 3% from the $1.33 billion reported in 3Q06, instead of projections of ~10% growth, with operating income (excluding ATI and acquisition-related charges) still in the black but “substantially lower” than the $119 million posted in 3Q.
“Gross margin and operating income were impacted by significantly lower microprocessor average selling prices, which largely offset a significant increase in unit sales,” the company said, in a statement. Official 4Q06/FY06 results will be released on Jan. 23.
Analysts Chris Caso and Elizabeth Pate from FBR Research think part of the problem is delays from AMD’s OEM customers, combined with heightened business from Intel’s customers. “We believe the miss is related to late-quarter pushouts by AMD’s OEM customers and the white box channel’s unwillingness to absorb excess AMD product,” they said, in a research note. “In contrast, our checks indicate that INTC customers pulled in orders in 4Q,” and Intel likely gained back some marketshare with its Conroe (Core 2 Duo) desktop product.
“To try and clear that more-or-less obsolete inventory, Intel has been doing some really low-priced deals, mostly in the desktop PC arena, and that’s kept AMD’s pricing lower than it ordinarily would have been,” noted Nathan Brookwood, president of consulting firm Insight64, quoted by Reuters.
The FBR Research analysts noted that the near future also favors Intel, which unlike AMD, “refreshed its entire processor product line” for desktops, notebooks, and servers. “We expect the ramp-up of INTC’s new processors, particularly in the server space, to pressure AMD’s market share in 2007.” Intel also should start seeing significant cost benefits in late 2007 as it starts ramping chips based on 45nm process technologies, which could also result in more pricing pressure on AMD, they added.