AMD May End 2002 on Positive Note

Advanced Micro Devices is looking to close the year on the upswing, citing stronger-than-expected demand for its Athlon XP PC processors and flash-memory products.

"We've had two success factors. One is the nice seasonal uptick in the consumer PC market, and we've really been addressing the PC supply chain inventory, which has got us into a much better balance situation in the market," said Robert Rivet, AMD's chief financial officer, speaking at the Credit Suisse First Boston technology conference in Scottsdale, Arizona, on Thursday.

The increased demand for AMD's PC processors could signal a coming rebound in the long-depressed PC market. AMD has seen the hottest sales among its midrange processors, such as the Athlon XP 1800+, said Rivet, despite the recent launches of the Athlon XP 2700+ and 2800+ processors.

AMD's long-awaited 64-bit Hammer architecture will be released in the form of the Opteron server chip in March or April 2003, Rivet said. The Hammer architecture allows users to run both 32-bit and 64-bit applications on the Opteron or Athlon 64 processors. Opteron will be positioned to compete against the 32-bit Xeon server processor from AMD rival Intel, he said.

Flash memory will continue to be a strong segment of AMD's business, especially as high-end cell phones emerge in 2003 with data-exchange capabilities, color screens, and built-in cameras, Rivet said. The company will also focus on the thin-and-light notebook market, and in the first quarter of 2003 several vendors will announce such notebooks carrying AMD's chips, he said.

Revenue Improves

AMD has raised projections for its fourth-quarter revenue, as well. It expects revenue will be about $700 million, which is 35 percent higher than the company's third-quarter revenue, AMD said. The company previously said fourth-quarter revenue would be 20 percent higher than its third-quarter results.

The fourth quarter is a traditionally strong season for PC purchases, but analysts have been unsure whether this year would follow suit.

"It's a positive sign, but I would caution that because it's seasonally driven, we don't expect it to continue into the first half of next year, as far as units go," said Eric Ross, principal analyst at market research firm Investec. The analysts expect the PC market to increase by about 10 percent in the fourth quarter, compared with a ten-year average of about 20 percent growth in the fourth quarter, he said.

Lagging demand for the company's flagship Athlon XP processors coupled with an increase in chip production earlier this year resulted in AMD having to cut chip production in the third quarter to reduce its inventory of processors.

AMD's third-quarter inventory problems make the fourth-quarter numbers look better, Ross noted. "The increase is impressive, but the third quarter was artificially depressed due to the inventory problems," he said.

Read the Numbers

The company posted a third-quarter net loss of $254 million on revenue of $508 million, and announced it would lay off 2000 workers over the next six months as part of a plan to cut expenses by $350 million.

"Our cost-management strategy is imperative to our immediate success, but you can't cut your way to success," Rivet said.

Archcompetitor Intel said Thursday it expects fourth-quarter revenue to come in between $6.8 billion and $7 billion, better than previous expectations. The company credited higher sales of processors in Asia as a reason behind the updated revenue guidance.