Sales Shortfall Hits AMD Shares: STOCK HITS NEW LOW AS OUTLOOK IS CUT AMID PRICE WAR WITH INTEL

Mar 06, 01:38 PM

Current Headlines: By Ryan Blitstein, San Jose Mercury News, Calif.

Mar. 6--Advanced Micro Devices' stock dropped to a 52-week low Monday after Chief Executive Hector Ruiz said that first-quarter sales would fall short of the company's previous expectations of $1.6 billion to $1.7 billion.

Ruiz blamed the lower revenue on problems arising from the Sunnyvale chip maker's shift toward selling chips directly to large computer makers, such as Hewlett-Packard and Dell, and not just smaller computer resellers.

"Frankly, we didn't do as good a job as we should have," Ruiz told financial analysts during a question-and-answer session at the Morgan Stanley Technology Conference in San Francisco.

AMD began to make inroads during the past few years with big computer makers like HP and IBM. Even Dell dropped its longtime exclusivity with Intel and now also uses AMD chips. The transition has happened more quickly than AMD expected, but a brutal price war with arch-rival Intel means depressed revenue when compared with more profitable sales to small dealers.

"If you win a deal for millions of processors for Hewlett-Packard or Dell, you have to sell to them at lower prices," said Gartner analyst Martin Reynolds. "Lower prices mean lower profit."

In addition, selling chips to the big accounts meant that AMD was sometimes unable to fill sales orders for its existing reseller partners.

"We let down our channel partners by not being able to support them as much as we wanted to," Ruiz said.

The profit warning comes barely a month after AMD announced a tough fourth quarter of 2006, during which the company reported a net loss of $574 million. Much of that was due to a $5.4 billion acquisition of graphics chip maker ATI Technologies, but the company's core revenue growth and profit margins fell.

Among analysts surveyed by Thomson Financial, the average expectation for first-quarter revenue was $1.66 billion.

After falling as low as $13.53 Monday, the company's stock closed down 1.6 percent at $13.95 a share.

Contact Ryan Blitstein at rblitstein@mercurynews.com or (408) 920-5715.

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