AMD Shares Rise on Higher 2Q Chip Sales

Advanced Micro Devices Inc. posted a second-quarter loss on heavy acquisition costs and lower microprocessor prices but gave investors hope with rising sales that beat Wall Street's expectations.

The world's No. 2 microprocessor maker won more market share during the quarter, and management predicted that the company will break even in the fourth quarter.

"I'm optimistic," said Doug Freedman, an analyst with American Technology Research. "I have my long-term concerns, but there was a bit of sentiment that these guys were going to get run out business. You don't expect someone who's going to get run out of business to run up the share like they did."

After the market closed Thursday, Sunnyvale-based AMD said it lost $600 million, or $1.09 per share, for the three months ended June 30. That compares with a profit of $89 million, or 18 cents per share, in the same period last year.

The chip maker incurred one-time charges of $130 million, or 24 cents per share, during the latest quarter related to shares $5.6 billion acquisition of graphics chip maker ATI Technologies Inc. and other expenses. Excluding those charges, AMD would have lost 85 cents per share.

Revenues for the second quarter were $1.38 billion versus $1.22 billion last year.

Analysts were expecting AMD to report a loss of 85 cents per share on $1.26 in revenue, according to a survey by Thomson Financial.

AMD shares fell 3 cents to $15.75 at the open of trading Friday.

The company said the 13 percent sales increase was driven by higher microprocessor shipments for servers, laptops and desktops. Average selling prices for desktop microprocessors were lower for the quarter, however.

AMD said the second-quarter results for 2006 and 2007 don't correlate directly because of the ATI acquisition.

"While we made solid progress in the second quarter across a number of fronts, we must improve our financial results," Robert Rivet, AMD's chief financial officer, said in a statement.

Price-cutting has hurt profits at AMD and its larger rival, Santa Clara-based Intel Corp.

A strong new product lineup introduced by Intel last year helped the world's largest semiconductor company take substantial market share from AMD. Intel also made a quicker transition to a more advanced chip-making process that boosts performance while lowering manufacturing costs.

But AMD is showing signs of a comeback.

The company appears to have stabilized its market-share losses, ending the second quarter with 11.4 percent of worldwide microprocessor sales, a slight increase from the previous quarter, according to preliminary data released Thursday by market researcher iSuppli Corp.

AMD's share of the global microprocessor market had risen to nearly 17 percent last year before falling about six percentage points in the second half of the year, according to iSuppli.

During the second quarter, AMD also announced that Japanese electronics giant Toshiba Corp. has agreed to use AMD processors in new consumer laptops in the U.S. and Europe. Toshiba had used previously used only Intel chips, which AMD cited in its landmark 2005 antitrust lawsuit against Intel. That case is still in discovery in Delaware federal court.

AMD's closely watched gross profit margin was 34 percent of revenues in the second quarter, excluding one-time expenses. That was three percentage points higher than the first quarter. AMD said the increase was caused by higher microprocessor sales even as the company wrote off about $30 million worth of old microprocessor inventory.

AMD said Thursday it expects revenues to increase in the third quarter in line with seasonal trends. The company is also set to launch its new server chip, code-named Barcelona, in August. The chip -- which has four processing cores on the same slice of silicon -- is seen as vital for AMD's competitiveness against Intel.