AMD cuts outlook, but doesn't blame PC market

AP News
Posted: Sep 28, 2011 5:31 PM
AMD cuts outlook, but doesn't blame PC market

Advanced Micro Devices Inc. has cut its revenue and profit forecast for the third quarter, blaming not the weak PC market in which it's a major player, but manufacturing problems that put it even further behind rival Intel Corp.

The chipmaker's stock fell 48 cents, or 7.8 percent, to $5.88 in after-hours trading Wednesday. It had fallen 34 cents, or 5.2 percent, to close at $6.15 at the end of the regular session.

The disclosure Wednesday is an inauspicious start for AMD's new CEO Rory Read, who was lured away from Lenovo Group last month to lead AMD at a difficult time for the Sunnyvale, Calif.-based company and its industry.

PC sales worldwide are in turmoil. The U.S. and European markets are contracting, and smartphones and tablets are on the rise. AMD hadn't had a permanent CEO since Read's predecessor, Dirk Meyer, was ousted in January over the board's dissatisfaction with the pace of AMD's growth.

AMD, which has since its inception more than 40 years ago been an underdog to Intel, hardly needs the latest setback.

AMD said it has encountered manufacturing problems at a facility in Germany operated by GlobalFoundries. That's the chip-making company that AMD spun off in 2009 so AMD could focus on chip design. The companies share a tight bond. The manufacturing problems caused AMD to have fewer of its newest chips to sell, hurting revenue and profit margins.

AMD now expects revenue in the third quarter to rise 4 percent to 6 percent over the quarter before, which translates to a range of $1.63 billion to $1.67 billion. It had previously forecast a rise of 8 percent to 12 percent, which translated to a range of $1.70 billion to $1.76 billion. Analysts polled by FactSet had previously expected $1.72 billion.

Gross profit margin should be 44 percent to 45 percent. AMD had previously forecast 47 percent. Gross margin is particularly important in the semiconductor industry because manufacturing costs tend to be high, and managing them is a key part of chip makers' dance with Wall Street.

Chip making is a notoriously delicate science. The number of usable chips in a particular batch can fluctuate based on miniscule changes to the way they are made. AMD did not provide specifics, but said it was hurt by such issues. In particular, production of a new type of chip that's vitally important to AMD was delayed.

AMD is banking on a class of chips called Fusion to lift its fortunes. The chips combine general-purpose computing and more-specialized graphics processing. AMD says the combination is important for the Internet era in which video plays a central role.

The chips are also important for AMD to justify its $5.6 billion acquisition of ATI Technologies in 2006. That deal brought AMD the graphics capabilities inside the Fusion chips. Debt from the deal plunged AMD into dire financial shape, forcing the company to spin off its manufacturing division, creating GlobalFoundries.

AMD is scheduled to report its third quarter results Oct. 27.