The company’s results came a day after Intel also disappointed with a lower-than-expected forecast.
AMD didn’t go down that road: the company gave no specific forecast for the third quarter except to say that it expects sequential revenue growth and a strong second half.
AMD posted a profit of $88m, or 18 cents a share, up from $11.3m, or 3 cents a share, a year ago. While impressive, the results missed analysts’ expectations of $89.2m, or 17 cents a share. Revenue at the Sunnyvale, California-based chipmaker rose 53%, driven by growth in all segments, to $1.22bn from a year ago, said CFO Robert Rivet.
We are disappointed we did not meet our sales objective, said Dirk Meyer, AMD president, on a conference call.
Sales in China were sequentially higher, but this was offset by lower sales in North America and Europe, he said.
Earlier in July, AMD cut its second-quarter guidance, following its strong first quarter, and had pegged sales of $1.215bn.
Deep discounting drove the lackluster performance in its core North American and European markets, Rivet noted. In some cases we walked away from that business that didn’t make sense, he said.
And AMD will continue to walk away from money-losing deals in the third quarter, said chief sales and marketing officer Henri Richard. We’re not going to chase what I call lighting a cigarette in front of a gas leak, he said.
AMD saw lower average selling prices for its wares in the second quarter, particularly in the desktop market, thanks to a pricing war with Intel. The latter had recently slashed prices of its Pentium desktop microprocessors, in anticipation of its forthcoming new Core Duo desktop chip.
On an earnings call, Intel chief executive Paul Otellini said Intel plans to keep prices of its Pentium chips low in order to push them into emerging markets.
AMD chief executive Hector Ruiz said The competition decided to throw away one of its brands and completely reposition Pentium. Our checks indicate there’s still a lot of inventory out there … which is why I’m cautious about the desktop space.
Indeed, he expects further pricing issues in third quarter. The issue we’re seeing in the marketplace is not so much the level of aggressiveness [of Intel price discounts] but the way it’s being communicated and how it’s disruptive to partners.
Rivet said AMD plans to build its inventory during the third quarter and may or may not drain it off in the fourth as usual. This year might change in the fourth, depending on how the customer input comes in, he said.
Despite its vague third-quarter forecast, Ruiz said several times on the call that AMD was optimistic about its sales for the second half based on customer feedback.
This is based on the inputs from our customers … that are telling us that the way they see our roadmap product plans … they’re feeling very bullish about acquiring our products from us. In fact, I believe in the third quarter we will able to be above seasonality.
AMD’s inventory levels were up 20% during the second quarter, while Intel’s reached record high levels. But Hector was quick to differentiate the companies’ strategies.
He said Intel had an awful lot of aging inventory in the pipeline that needs to be dealt with … and this creates challenge, he said. We are not building aging inventory. Rather, AMD is stock up on its new Turion line of desktop processors, as well as Opterons, he said. So our view is somewhat different. Even if Intel is building inventory on new products, they still have very large [levels of] aging inventory they have to deal with.
AMD’s Opteron server chips remained a bright spot for the company. Opteron revenues grew 141% year-over-year, Meyer said.
Looking ahead, AMD plans to continue to accelerate its spending on enterprise marketing, Richard said, without giving specifics.
Meyer said the company was on track to demonstrate by the end of the year its new microprocessor core, in the form of a quad-core chip. He said the planned commercial launch of the chip was for mid-2007.
Ruiz also seemed to hint at a broader relationship with Dell Inc, the world’s largest PC maker. Earlier this year, Dell broke away from its tradition of selling only Intel-based products by announcing it would launch an Opteron-based server by year’s end.
At this point, the only product they have openly announced is the launch of a server by the end of the year, Hector said, somewhat cryptically. When an analyst on the call pressed him about an expanded deal with Dell, Hector declined to elaborate.
Shares in AMD fell nearly 3.5% to $20.90 in after-hours trading on the Nasdaq following the news.
