In early trading Thursday, AMD shares were down 3 3/16 to 17 3/4, or 15 percent. On Wednesday, AMD shares were rattled after the company pulled out of its scheduled appearance at the Nationsbanc Montgomery Securities Technology conference in San Francisco, and cancelled a presentation at the Goldman, Sachs & Co. conference in New York.
"I can't comment," said Scott Allen, an AMD spokesman. "I'm tightly constrained as to what I can say."
Although the company gave no explanation, that didn't stop Kumar from giving one.
In a research note issued Thursday, Kumar said AMD is beginning to feel the heat from Intel price cuts.
"Our checks indicate that OEM prices on K6-2s for March delivery are as follows: 333MHz - $40, 366MHz - $50, $380MHz - $55 and 400MHz - $60," wrote Kumar, who rates AMD a "hold."
"As such, we expect blended average selling prices (ASPs) exiting the March quarter to drop to $60, a 30 percent sequential decline."
In addition to Kumar's comments, Merrill Lynch cut AMD to a near-term "accumulate" from a "neutral." Merrill Lynch kept AMD at a long-term "accumulate." Merrill also slashed its fiscal 1999 estimates to a range of 75 cents a share to $1.00 a share from $1.55 a share.
Any pricing pressure is a big threat to AMD given its history of falling short of Wall Street estimates. No less than 19 analysts rate AMD shares a "hold," with five giving the stock "buy" ratings.
In AMD's fourth quarter, the company missed expectations because of a production glitch. In the quarter, AMD reported strong sales, but still fell 4 cents shy of estimates. AMD reported fourth quarter earnings of $22.3 million, or 15 cents a share.
Because of AMD's production problems, the chipmaker is saddled with a lot of low megahertz chips that it will have to writedown, said Kumar.
As if that news wasn't bad enough, Kumar said his checks indicated slow sales for Compaq PCs powered by AMD's K62-400MHz processor. "Our channel checks indicate that K62-400 based Compaq SKUs, priced at about $1,500, are not selling well," wrote Kumar. "For one, Intel has aggressively priced Celeron 400 SKUs at $1,200."
Gateway on Wednesday confirmed that it is working with AMD to produce PCs in Japan. Kumar, however, notes that Gateway sold less than 200,000 PCs in Japan last year. PC Week originally reported that Gateway and AMD would work together.
On the Gateway deal, Kumar said Gateway was using AMD as a bargaining chip for better pricing from Intel.
"With blended ASPs approaching $50 by summer, AMD is expected to drop into the red," said Kumar. "As such, we expect the company to implement austerity measures to stem losses."