AMD has admitted that price pressure from rival Intel has forced the company to "incur an operating loss" for the current quarter, sending its shares into a $2 drop before trading was halted, yesterday.
AMD's share price stood at $18.94 before trading was stopped with CEO Jerry Saunders directly blaming Intel's "recent pull-in of its February 28 price reductions to February 8."
With a company policy of always undercutting Intel pricing by 25 per cent, AMD has always been walking a tightrope, a fact compounded with the introduction of faster and cheaper Celerons aimed at AMD's core market.
Last year the company claimed that sufficient volumes in AMD product by Q2 this year should ensure that the company could resist any pricing cuts instigated by Intel. Both companies have been playing cat and mouse in recent weeks over the release dates and pricing of their respected processor upgrades.
Intel is due to preview its Pentium III (Katmai) processor later this month with AMD claiming it is moving its release date of its Sharptooth K6-3 chip forward to steal Intel's thunder.
"Pending product announcements, we are re-assessing our competitive response," added Saunders. "The likely outcome is that in spite of the planned richer mix, we will be unable to increase our microprocessor average selling prices in the current quarter. This will put additional pressure on our gross margins. In the face of planned R&D spending on technology development through the Motorola alliance and at our new Dresden megafab, the company could incur an operating loss in the current quarter."
Saunders did add that design enhancements to increase the yield of higher-speed versions of the AMD-K6-2 processor with 3DNow! technology have been successfully implemented. "We will not, however, realise the benefits of the change in production output until the back half of the current quarter," he said.