Intel Corp challenger Advanced Micro Devices Inc posted fourth- quarter numbers that showed significant improvement but still fell short of the renewed high hopes for the company. Net income for the period was $22.3m, or $0.15 per share, on revenue that rose a respectable 28.6% to $788.8m – solid results, especially when compared to a net loss of $12.3m in the year-ago period and net income of just $1.0m in the preceding quarter. Wall Street was looking for more, however, as analysts surveyed by First Call were expecting earnings of $0.18, with some estimates a bit higher than that consensus. The shortfall is highlighted by the fact that a day earlier Intel posted stronger-than-expected earnings for its fourth quarter. The main problem for the quarter, chief executive Jerry Sanders explained, is that a design flaw caused the company to sell a substantial number of 350-MHz K6-2 chips as 333-MHz or even 300-MHz parts, because they wouldn’t run any faster than that. AMD’s goal for the quarter was to sell more than half its chips at the 350-MHz level or above and ended the quarter with only 34% instead, dragging down average selling prices and margins. Sanders estimates that the problem shaved about $20m off the top line, while gross margin stood at 38.9%, up just 0.6% from the third quarter. The company says it shipped about 400,000 of the 400-MHz processors, but was unable to satisfy strong demand. Sanders insists that the speed problem has been addressed and that it should not have an impact on the product mix for the first quarter, when he expects margins to creep back up into the low-to-mid 40s. The company said that virtually all of the revenue growth for the quarter resulted from increased sales of K6-2 processors with 3DNow technology. Revenues from other product groups; communications, memory and the Vantis programmable logic subsidiary – were essentially flat with the prior quarter. Overall shipments of K6 processors grew by 1.7 million, or 45% from the prior quarter, to 5.5 million units, while K6 revenues grew by more than $100m over the third quarter to $488m. For the fiscal year, AMD’s net loss was $104m on revenue up 7.9% at $2.54bn, up from a loss of $21.1m last year. Results for the full year include a litigation settlement charge of $11.5m. Of the 13.5 million K6 processors shipped in fiscal 1998, more than 8.5 million were K6-2 chips with 3Dnow, leading the company to believe that the growing installed base of systems with 3DNow technology will entice developers, which in turn should enhance opportunities for broader acceptance of its processors going forward. All of the company’s chips now incorporate the technology. AMD claims that K6 processors accounted for 16% of all processor units for Windows computing in the fourth quarter – double the market share from the year-ago quarter. It also says that, at 38% market share, K6 chips were number one in the booming sub-$1,000 desktop market and held their own with 37% market share in the $1,000-to-$1,500 desktop segment. Looking ahead, AMD expects to ship about 20-25 million units in fiscal 1999, with first-quarter numbers roughly equal to last quarter’s 5.5 million. With the mix skewed toward higher speeds, though, the bottom line is expected to be healthier to start off the new year. The first quarter will also see the introduction of the K6-3, which AMD says it will ramp up at a rate that should allow to compete head-to-head with the Pentium III in the second quarter.
