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News > Technology
AMD's 2Q profit soars
July 19, 2000: 8:05 p.m. ET

Semiconductor maker credits strong flash chip, microprocessor demand
By Staff Writer Richard Richtmyer
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NEW YORK (CNNfn) - Advanced Micro Devices Inc. on Wednesday reported a second-quarter profit that beat Wall Street's expectations as demand for its PC microprocessor and flash memory chips resulted in another quarter of record sales and earnings.

Separately, AMD's board of directors authorized a 2-for-1 stock split payable on August 21 to shareholders of record as of August 7.

AMD said it earned $207 million, or $1.21 per share during the quarter ended July 2. That compares with a loss of $1.10 per share during the corresponding period last year, and is well ahead of the $1.14 per-share profit analysts polled by earnings tracker First Call had expected the company to turn during the quarter.

Meanwhile, sales nearly doubled from last year's second quarter, coming in at $1.2 billion.

AMD (AMD: Research, Estimates) shares rose 1 to 92 in New York Stock Exchange ahead of the earnings announcement. They were halted in after hours.

Although the company's earnings were above expectations, there wasn't much of an upside surprise on its top line. And that could put some pressure on the stock when it begins trading again Thursday.

"In an absolute sense, the results were good," said SG Cowen analyst Drew Peck. "But I think there may be some disappointment over revenue, which came in basically in line with expectations."

During the first quarter, AMD also posted better-than-expected financial results. But its revenue also came in far ahead of forecasts.

"In light of the huge upside we saw last quarter, I think a lot of investors might have been expecting a little bit better," Peck said. "That may be a nagging problem when you consider that the stock was discounting fairly high expectations already. I suspect there could be some weakness as a result of that."

Microprocessors, flash memory demand soars


Executives at AMD in Sunnyvale, Calif., chalked up the better-than-expected results to soaring demand for its computer processors and flash-memory chips.

AMD is the world's second largest supplier of PC microprocessors behind Intel. The company also is a leading supplier of flash memory, which is used widely in wireless telephones and other portable electronic devices.

graphic"We maintained a high rate of unit sales in what is traditionally the weakest quarter for PC processors," Hector de J. Ruiz, AMD's president and chief operating officer, told analysts in a conference call Wednesday evening.

The second half of the year is typically the strongest for the semiconductor industry as demand for PCs and other electronics increases during the holiday and back-to-school seasons, and the second quarter usually is the softest.

Even so, AMD said combined shipments of its Athlon, Duron, and K6-2 processors remained near record levels at well in excess of 6 million units.

At the same time, sales of flash memory rose by more than 10 percent from the immediately preceding quarter, the company reported.

Executives also sought to put to rest any lingering concerns of a looming oversupply of semiconductor products, especially flash memory.

In a move that sparked a debate on Wall Street earlier this month, Salomon Smith Barney downgraded its rating on the semiconductor sector, warning that chip makers' high spending levels to expand their manufacturing capacity could mean the chip industry has reached a peak and will begin to turn down in the next six to nine months.

In making that determination, Salomon Smith Barney analysts said they examined "top-down" indicators such as shipment growth rates and capital spending, as well as "bottoms-up" indicators such as lead times, prices and inventory levels. They concluded that bottoms-up picture was sending cautionary signals because of a slight slowing in cellular-phone growth expectations and the rapid increase in capacity.

Ben Anixter, AMD's vice president of external affairs, refuted that conclusion Wednesday. In fact, he said AMD's customers who have long-term supplier agreements are asking for 50 percent more flash than they had already contracted for the year 2001

"Some have speculated that supply is becoming more available compared to demand, and there has been some concern about the announced flash capacity expansions," Anixter said.

graphic"We do not see any evidence of this loosening," Anixter added. "From our point of view, based on a top-down analysis and a bottoms-up look at each application, we see a very strong market."

Looking ahead, Anixter said sales in AMD's memory group, which consists mostly of flash, will grow roughly 10 percent in the third and fourth quarter of this year. He noted that demand for flash memory is likely to continue to exceed supply.

Earlier Wednesday, AMD and its Japanese joint-venture partner Fujitsu broke ground on a new $1.5 billion, 100,000 sq. ft. manufacturing plant set to begin production in the second half of next year.

PC processor growth target raised


AMD executives also said they anticipate continued robust demand for PC microprocessors in the second half.

The company now expects to sell 28 million microprocessors for the year, up from an earlier forecast of 25 million. So far, the company already has sold about 13 million processors.

During the second quarter, AMD said combined unit shipments of its seventh-generation processors rose substantially. Sales of Athlon and Duron processors increased 52 percent over the immediate-prior quarter to more than 1.8 million units.

With the additional production capacity of a recently-opened manufacturing plant in Dresden, Germany, Ruiz said AMD is on target to double unit shipments of its Athlon and Duron products in each of the next two quarters.

As an indicator of the level of demand, Ruiz pointed out that AMD already has sold out its available K6-2 processors for the third quarter. During the second quarter, the average selling price of AMD's processors rose to the low $90s and they could rise to the company's goal of $100 by the end of this year, Ruiz said.

The company's positive outlook came a day after Intel  (INTC: Research, Estimates) reported stronger quarterly results and executives also told of uncharacteristically strong third-quarter demand for microprocessors. Back to top

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