AMD's losses grow, president resigns

Ailing company getting battered in price war with Intel, but hopes its new Athlon processor will run up profits.
Written by Robert Lemos, Contributor

Struggling microprocessor maker Advanced Micro Devices Inc. revealed a staggering $1.10 loss per share for its second quarter on Wednesday and the resignation of a key executive.

The California-based chip maker continues to be battered in an ongoing price war with rival Intel Corp.

"Intel's control of the low-end market with the Celeron [chip] has let them collapse the umbrella over us," said W.J. Sanders III, AMD's chairman and CEO. "Albeit with some cost to them, but with a devastating cost to us."

AMD reported a net loss of $163m on sales of $595m for the second quarter, compared with $65 million in losses for the same quarter a year ago.

But AMD took an even greater hit on the personnel front, more fallout from the ultra-competitive chip wars: The resignation of the one of the key architects of its successful K6 processor -- S. Atiq Raza, the company's president, chief operating officer and chief technical officer. "Atiq is going to be very hard to replace," said Sanders. "He is a unique individual."

Both Raza -- who will leave AMD on Friday, but will continue to be associated with the company -- and Sanders were closed-mouthed about the departure. "I'm leaving AMD at this time for personal reasons," said Raza in a statement. "But I look forward to having conversations with Jerry as we seek to determine how I might be able to contribute to AMD's future success."

That success is anything but assured, however.

According to Sanders, the averaging selling price of AMD processors -- a number he said last year needed to be more than $100 per chip for the company to be profitable -- dropped from a dire $78-per-chip average to an even more abysmal $67 per chip. That number is expected to keep plummeting as well, said Sanders, who expected the sales price to land in the mid-$50s in the coming quarter.

And while AMD sold about 3.7 million microprocessors last quarter, most of those were K6 and K6-2 chips -- with lower profit margins. "Intel has been able to use Celeron to really bloody AMD and prevent them from getting any profit in the market," said Linley Gwennap, analyst with chip technology watcher MicroDesign Resources Inc. and editor of the Microprocessor report.

AMD's more expensive K6-III processors only accounted for less than 10 percent of the market.

But AMD has hope. PCs based on the company's new K7, or Athlon, processor, which started shipping in June, will hit the market in time for the back-to-school season, said Sanders. "The key to resuming growth and expanding our markets is the Athlon processor," he said. "We believe it will allow us to break out of the low-cost market."

If AMD can escape the manufacturing problems that have plagued its microprocessor launches the past two years, the company hopes to ship hundreds of thousands of Athlon chips in the third quarter and more than a million in the fourth quarter.

AMD's stock price rose $0.93 to $18 on expectation of the news, which was released after the close of the market.

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