AMD posts $611m loss in quarterly results

Advanced Micro Devices (AMD) has posted $611m (£305m) loss for the first quarter of 2007, the second quarter running that the chip maker has recorded losses.

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Advanced Micro Devices (AMD) has posted $611m (£305m) loss for the first quarter of 2007, the second quarter running that the chip maker has recorded losses.

Financial analysts had expected bad news, with AMD warning 9 April that it would miss its revenue forecast of $1.6 bn (£800m) to $1.7bn (£850m). In response, estimated losses were ajusted to $0.48 (£0.24) per share on revenues of $1.26bn (£630m), according to Thomson Financial.

But the AMD figures came in far below that estimate, with a loss of $1.11 (£0.55) per share on revenue of $1.23bn (£610m) for the quarter ending 31 March. For comparison purposes, AMD's loss was $0.90 (£0.45) per share, excluding $113m (£56m) in expenses used to acquire ATI 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 $185m (£92m) on revenue of $1.33bn (£650m). 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 also 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.

In response to the "disappointing and unacceptable" results, AMD chief frinancial 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 expenditure by $500m (£250M) and limit hiring to critical positions.

AMD will now expand that recovery plan, slashing discretionary spending by $100m (£50m) annually and making further cuts in hiring. "We plan to leave the year with a lower headcount 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 Barcelona quad-core Opteron chip on schedule. "We know we cannot cut our way to prosperity," Meyer said. The company began shipping pre-production 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 chief executive 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 rumours that private equity firms could purchase an interest in the company, he said he would explore any funding source that did not cramp his long-term goal of winning more market share from Intel and bringing more competition to the processor marketplace.

However, Ruiz denied AMD would undertake a full-scale reorganisation such as the changes made at Intel, which included more than 11,000 layoffs, about 10% of that company. "We are not going to change our goals, our objectives, our technology, our strategy because of one lousy quarter," he said.

Together, these steps should help AMD recover from a "perfect storm" of four factors that caused the company's earnings setback in the quarter, he said. First, AMD was beset by growing pains that caused it to fall behind in supplying chips to its distribution channel customers, as it rushed to deliver processors for new contracts with original equipment manufacturers. At the same time, the company was hurt by pricing pressure from Intel, better quality chips from Intel and other competitors and weakening demand in the consumer electronics business.

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