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October 6, 1999

AMD Cuts Losses in Q3, Will Sell Business Unit

By CBR Staff Writer

Advanced Micro Devices Inc reported a third-quarter loss that was smaller than Wall Street expected on the strength of its new Athlon processor and solid sales of flash memory chips. The company also said Wednesday that it would sell its communications products business. Net loss for the quarter was $105.5m, or $0.72 per share, when analysts surveyed by First Call had projected a much wider loss of $0.97. Net income for the year-ago quarter was $1.0m, or $0.01 per share.

Revenue for the Sunnyvale, California-based chipmaker rose 11.3% sequentially to $662.2m but fell 3.3% on a year-over-year basis. Excluding results from Vantis Corp, the AMD programmable logic subsidiary that was sold during the second quarter, sales for continuing operations were up 16% from the prior quarter and 1% from the third quarter of 1998.

Operating loss for the quarter was cut by $74m from the prior quarter and gross margins rose to 28.4% from 22.9% due to a 28% sequential rise in sales of flash memories and sales of Athlon chips at higher margins than those on the older AMD-K6 family. The company said demand for flash memory continues to outstrip its ability to supply, even as its moves to increase production capacity.

On the PC processor front, AMD said unit sales grew more than 20% sequentially to more than 4.5 million units and revenue rose 15% from the prior quarter to roughly $295m. It barely managed to meet its goal of shipping hundreds of thousands of Athlons despite a shortage of motherboards which was exacerbated by the Taiwan earthquake on September 21, shutting off motherboard shipments in the final week of the quarter.

Overall average selling prices for PC processors slipped only 5% in the quarter to $65, ending three quarters of double-digit ASP declines, as 75% of all chips shipped were 400-MHz parts and up. All of the chips sold in the current quarter are expected to be running at least that clock speed.

The ASPs for Athlons, meanwhile, was close to $300 in the quarter. All Athlons shipped during the quarter were 0.25 micron parts and the first revenue from 0.18-micron Athlons is expected this quarter, with production of 0.25-micron Athlons completely phased out by the quarter’s end. The 750-MHz version of the chip is expected to ship during the first quarter of next year.

Meanwhile, AMD said it has engaged investment banks Donaldson, Lufkin, & Jenrette and Salomon Smith Barney to find a buyer for its communications group. The group’s two units produce integrated circuits for telecoms applications and data communications and connectivity. The group employs 400 staff, primarily in Sunnyvale and Austin, Texas, and booked revenues of about $70m in the third quarter. AMD said it plans to complete the sale in the first half of 2000 as it concentrates on PC-based products.

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For the nine month period, net loss was $154m on revenue up 7.7% at $1.89bn, compared to a loss of $126.3m last year. Nine-month results include a one-time gain of $432.1m from the Vantis sale and restructuring charges of $32.5m. Year-ago results include a charge of $11.5m stemming from a litigation settlement.

Looking ahead, the company said it will likely produce more than a million Athlons in the fourth quarter and hopes to have shipped at least a million by the end of the year. It projects overall sales of five million PC processors in total for the current quarter. If motherboard supply can hold up, AMD said it could see overall fourth-quarter of more than $800m – although it currently says $850m is the break-even point for the quarter. No further guidance was given by the company.

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