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Advanced Micro Devices posts surprise profit

Computer chip maker Advanced Micro Devices Inc. Wednesday posted an unexpected net profit as strong microprocessor sales offset weakness in memory chips used in consumer electronics.
/ Source: Reuters

Computer chip maker Advanced Micro Devices Inc. Wednesday posted an unexpected quarterly profit, as strong PC microprocessor sales offset weakness in memory chips used in consumer electronics.

AMD posted a net profit for the second quarter ended June 26 of $11.3 million, or 3 cents a diluted share, compared with $32 million, or 9 cents, in the year-earlier quarter.

Wall Street was expecting a loss, on average, of 5 cents per share, according to Reuters Estimates. Forecasts ranged from a loss of 17 cents to a profit of 5 cents.

“There is definitely an underlying strength in the microprocessor market,” which will benefit Intel as well, said Cody Acree, an analyst with Legg Mason in Dallas.

“What was not expected was the contribution from memory, which some analysts had forecast would have steeper losses,” he said.

AMD reported a second-quarter operating loss of $7.1 million, before calculating the effect of minority business interests tied to its Spansion memory chip joint venture, in which Fujitsu Ltd. holds 40 percent and AMD the rest.

Revenue was flat at $1.26 billion from the year-earlier. Results were driven by a record $767 million in sales in its personal-computer chips business, which grew 38 percent from a year ago. Memory chip sales fell 31 percent to $462 million.

Analysts on average, had been looking for revenue of $1.22 billion in the latest quarter, according to Reuters Estimates. Forecasts ranged from $1.18 billion to $1.26 billion.

“We are actually seeing very favorable environments in the PC business, both in the commercial and consumer PC business,” Henri Richard, AMD’s vice president of worldwide sales, said of the overall market for PC chips for the second half of the year.

Gross profit margin as a percentage of sales jumped to 39 percent from 34 percent in the first quarter of this year, when plunging flash memory prices caused AMD profit margins to fall back from 41 percent in the fourth quarter. Gross margins in its core microprocessor business were 59 percent.

Average selling prices sank even as the number of flash memory chips AMD shipped to makers of mobile phones, digital music players and other gadgets rose 12 percent. Spansion made progress in boosting the percentage of pricier flash chips used in the latest mobile phones to above 20 percent, AMD said.

“We remain on track with our plan for a more independent Spansion,” AMD Chief Executive Hector Ruiz said.

AMD said it expected stronger third-quarter sales of the company’s microprocessors, the chips which act as the brains of personal computers and represent three-fifths of its revenue.

“AMD expects microprocessor sales growth to exceed normal seasonal patterns,” the company said in a statement. The third quarter is typically a strong quarter as PC makers stock up on microprocessor chips ahead of the big year-end selling season.

AMD is a distant No. 2 player to Intel in PCs but has been making in-roads in servers and notebooks. It has set a goal of taking a 10 percent share, in revenue terms, during 2005. Two weeks ago, AMD filed an antitrust lawsuit against Intel, which holds roughly 80 percent of the PC microprocessor market.

“Starting from our low market share, the only way we can look is up,” Richard said. “If we continue to execute like we did in the second quarter, we will cross that threshold,” he said, referring to the 10 percent share goal.

As a measure of its progress, Ruiz said AMD is now selling processors for use in PCs sold to 75 of the world’s top 100 companies, up from 55 in the last quarter.

“AMD is gaining share, especially in servers,” Acree said of the progress the company is making against Intel.

On the Inet electronic brokerage network, AMD’s shares rose 60 cents to $19.85, while Intel’s shares were up 18 cents at $27.77 after hours.