ATI buyout eats into AMD's Q4

AMD reported a fourth-quarter loss of $574 million, blaming sinking processor prices and its purchase of graphics chip maker ATI.

Beset by sinking prices for microprocessors and the cost of acquiring graphics chip company ATI, AMD has reported a fourth-quarter loss of $US574 million, down from a profit of $US96 million for the same quarter last year.

AMD posted a loss of $US1.08 per share for the quarter ending December 31, far off its profit of $US0.21 last year and the Wall Street estimate of $US0.10, according to a poll by Thomson Financial. AMD blamed most of that loss -- $US1.04 -- on $US550 million it paid in acquisition charges to buy ATI.

The loss came despite rising revenue and an increasing slice of market share compared to rival Intel Corp. Excluding the charges of acquiring ATI and paying stock-based compensation, AMD posted $US63 million in profit compared with $US272 million last year. AMD's revenue rose from $US1.35 billion for the quarter last year to $US1.37 billion, excluding ATI revenue. Including ATI, revenue was $US1.77 billion.

AMD executives insisted they were positioned for success in 2007, pointing to their acquisition of ATI on October 24 and a rise in quarterly revenue -- including the ATI deal -- of 31 per cent from the fourth quarter of 2005.

Faced with tougher pricing competition than originally planned, AMD would compete in 2007 by growing its per centage share of the worldwide chip market from its current mark in the mid-twenties, pursuing its long-running antitrust lawsuit against Intel, and continuing its transition from a 90nm to a 65nm chip manufacturing process, AMD CEO, Hector Ruiz, said.

The company would also accelerate its transition to the next step, building chips with 45nm features, in order to close the gap with Intel, Ruiz said. AMD began its first revenue shipments of 65nm chips in December, whereas Intel had already reported in September that it was shipping more 65nm than 90nm chips.

AMD also lags in the production of quad-core chips, which Intel started shipping under its Xeon brand in the fourth quarter. AMD expected a jump in revenue in the middle of 2007 because certain customers might be waiting to buy new chips until the company released its Barcelona quad-core Opteron server chip, Ruiz said.

Despite that manufacturing disadvantage, AMD relied on strong processing efficiency to increase chip sales based on its power per watt marketing mantra.

"We are not satisfied with our performance, and we know we need to take steps to improve in the future, but we are proud that we grew processor unit shipments over the last quarter," AMD's president and chief operating officer, Dirk Meyer, said.

AMD did not report specific numbers but said its fourth-quarter microprocessor unit shipments grew 26 per cent over the same quarter last year.

Most of that growth was driven by a 76 per cent jump in sales of AMD's mobile chips, such as the Turion processor for notebook PCs. AMD also saw strong sales of its dual-core Athlon 64 X2 chip for desktop PCs, the company reported in a release.

AMD's greatest disappointment came from sales of its Opteron server chips, which were essentially flat compared with the third quarter, while average selling prices (ASPs) dropped "significantly."

For the entire year, AMD reported a loss of $US166 million on revenue of $US5.65 billion. That compared to a profit of $US165 million and revenue of $US5.85 billion for 2005. AMD's loss of $US0.34 per share in 2006 was far below analysts' expectations of $US0.91 earnings per share.

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Ben Ames

IDG News Service

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