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AMD delivers Q3 sales warning

Misses targets

AMD has warned of much lower than expected revenues for the third quarter, which it blamed on the poor performance of the PC market.

The company, Intel's biggest competitor, said that it expected revenues in the third quarter ending 29 September to be around USD500 million. The company had predicted a small "improvement" on revenues of USD600 million achieved in the second quarter. Analysts had predicted revenues of USD614 million.

AMD said it had slowed shipments of processor chips during the quarter because chip inventories had built up among PC makers and their suppliers. That move, in turn, whacked processor sales in terms of units, revenue and average selling prices.

"In the absence of any significant improvement in PC demand in the just completed quarter, we accelerated our efforts to reduce processor inventory in the PC supply chain," said Robert J. Rivet, AMD's chief financial officer. "The aggressive actions we took to lower the total inventory and align the mix with current opportunities had a significant negative impact on our third quarter processor sales in units, revenues and ASP's."

AMD shares fell some 18 per cent during after hours trading following the news.

AMD has roughly 20 per cent to 25 per cent of the PC market for processor chips, making it a significant competitor to Intel. However, the company has been falling behind Intel in terms of supplying enough chips similar in speeds to Intel, which has lead the company the sell more lower priced versions of its Athlon and Duron processors.

The news follows an announcement by Dell that will see it once again exceed revenue expectations for its third quarter. This is the seventh consecutive quarter that Dell has met or exceeded sales and earnings targets.

The company expects revenues of USD9.1 billion in the third quarter, up from the original guidance of USD8.9 billion, and earnings per share of USD0.21. Dell attributed this continuing strong performance to growth in shipments of servers and storages systems.

Both announcements have created a degree of confusion in the market, with shares up on Dell's news, but falling sharply on AMD's announcement.

However, Brian Gammage, an analyst with Gartner Dataquest, said that Dell is continuing to aggressively expand its presence geographically, but it is not clear how Dell is generating its revenues. "We don't really know which part of the business is generating the revenues as the PC market is still weak."

As far as the processor market is concerned, Gammage points out that AMD has not been in profit for some time. In the processor market, average prices have come down and weak volumes relate to less money.

Indeed, shares in Intel have fallen 54 percent so far this year, while AMD shares have fallen 66 percent in the same period.

However, AMD is in the process of examining the way it goes to market, said Gammage. He said he was satisfied the company is "continuing its house cleaning" and moving away from spot market products, stripping out channel inventory and concentrating its efforts on smaller PC builders.

Analysts will be watching its performance for the fourth quarter, he said. "It's taking the necessary hit as it revises its supply chain processes. If they're going to bounce back, they'll bounce back soon."


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