Advanced Micro Devices (AMD), the number two microprocessor maker, warned yesterday that it will likely miss its quarterly revenue target as it loses market share among computer resellers, a traditional bulwark of its business.
It was the second quarter in a row AMD has shown signs of trouble as it wages a bruising price war with Intel, a fight that has eroded profits at both main rivals in the $30 billion processor industry.
The two Silicon Valley combatants said they expected competitive pricing to continue this year, with Intel CE Paul Otellini hinting he is ready to dig in his heels to stop AMD's overall recent market share gains.
"I've always been a market share guy," Otellini said during a Webcast from a Morgan Stanley investment conference. "In order to generate the scale at which we operate our business, having a very significant market share is critical."
Let down channel partners
Intel's total market share among desktop, laptop and server computers fell to 74.4% in the fourth quarter of 2006, while AMD's rose to a record 25%, according to market research firm Mercury Research.
However, AMD said yesterday that its first-quarter revenue would fall short of the $1.6 billion to $1.7 billion target it gave in January. Wall Street, on average, was expecting revenue of $1.65 billion, according to Reuters Estimates.
AMD CE Hector Ruiz, also speaking at the Morgan Stanley conference, said direct sales to PC makers had grown dramatically in a short time, but faulted his company for failing to focus on its traditional customers, the computer resellers.
"We let down our channel partners by not being able to support them as much as they wanted," Ruiz said. "I think going into second quarter that we can regain the position we had before."
Last quarter, AMD posted a surprise net loss as the price war with Intel took a heavier toll than expected.
Ruiz sounded a bullish tone on the long-term prospects for the processor industry, saying the spread of computing into the entertainment, education and health industries meant demand could grow by 20% a year or more.
Low expectations
AMD shares closed down 23c, or 1.6%, at $13.95 on the New York Stock Exchange, after falling as low as $13.53 following the revenue warning. Intel shares fell 0.6% to end at $19.11 on the Nasdaq.
Stifel Nicolaus analyst Cody Acree said the drop in AMD's share price may have been tempered by the fact that many investors already had low expectations.
"I think it's a continuation of share loss back to Intel and aggressive pricing in an effort to maintain share," Acree said. "I don't think anybody was expecting strength from AMD."
The Semiconductor Industry Association said yesterday sales of all kinds of microchips rose more than 9% from a year earlier, data Citigroup analyst Glen Yeung cited as some evidence that the industry is set for a rebound.
Yeung said PC processor prices rose 4.6% in January, as calculated on a three-month moving average, while sales of processors rose half a percent, compared to a five-year average decline of nearly 3%.
"While mix remains a main wild card, price trends we have observed do not portend a major price war," Yeung said.
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