AMD Sees Revenue Sliding -- 2nd Update

By Don Clark and Josh Beckerman 

Advanced Micro Devices Inc. said revenue fell more than it expected in the second quarter, the latest sign of worsening conditions in the market for personal computers.

The company, the longtime minority supplier of microprocessors behind Intel Corp., said Monday it expected to report that revenue for the period ended in June was 8% lower than it reported for the first period. AMD previously had projected a 3% sequential decline.

AMD, which expects to issue its financial results formally on July 16, attributed the decline to weak consumer demand for PCs. The company also said a manufacturing transition would cause a $33 million charge, further squeezing its profit margins.

Shares of the Sunnyvale, Calif., company fell 13% in after-hours trading following the announcement.

AMD's disclosure follows a series of negative signs in the PC sector, including Intel's move in March to cut its outlook for the first quarter.

AMD has seen its market share fall dramatically in chips for computers. It posted a $180 million loss in the first quarter and said it would lose money through the first half of the year.

Lisa Su, named AMD's chief executive last year, in May set a new strategy that emphasized fewer businesses where AMD could make a profit. The company, which supplies chips for game consoles sold by Sony Corp. and Microsoft Corp., expects to build on its strength in chips that render graphics in markets such as virtual reality. She predicted at the time that AMD would return to profitability in the second half of the year.

On Monday, however, AMD said its gross margin will be lower than expected in the second period. One factor is a higher mix of chips from segments beyond computers that include processors that AMD customizes for game console makers and others. Those businesses, which rely on competitive bids for sales contracts, often carry lower profit margins.

The other factor reflects the company's manufacturing strategy. AMD, which uses partners to make its chips, disclosed that it had begun several designs for new products that would exploit an existing production process. But the company said it had instead decided to shift to a more advanced production recipe that creates transistors that are faster and use less energy. That decision triggered the $33 million charge.

Before the announcement Monday, analysts polled by Thomson Reuters projected a loss of 13 cents a share for the quarter on revenue of about $1 billion. In the year-earlier period, AMD reported a net loss of 5 cents a share on revenue of $1.44 billion.

Write to Don Clark at [e-mail] and Josh Beckerman at [e-mail]

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