AMD warns as revenues slide

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A bruising price war continued to take its toll on AMD on Monday as the world’s second-biggest microprocessor maker said it expected sales to miss forecasts by more than 20 per cent in the first quarter.

Shares of AMD jumped more than five per cent, however, as the company announced $500m in cost cuts designed to help it better compete with industry arch-rival Intel.

AMD now expects to record sales of about $1.23bn in the first fiscal quarter, below the $1.6bn to $1.7bn it had originally forecast. Investors had been bracing for the poor first-quarter performance since last month, when the chipmaker warned that it was unlikely to meet its sales targets.

“Revenues declined sharply quarter-over-quarter for the Computing Solutions segment, primarily due to lower overall average selling prices and significantly lower unit sales, especially in the resale channel,” the company said in a statement on Monday.

AMD’s stock price rose 5.5 per cent on Monday to $13.57 by mid-day in New York. The company’s shares had fallen sharply from a high of $40.54 in February last year as tough price competition and new processors from Intel cut into margins and sales.

AMD said it planned to “restructure its business model to increase operational efficiencies and lower the operating cost structure.” The company said it would cut capital expenditures by $500m this year. It said it would cut discretionary expenses and restrict hiring to critical positions.

Intel and AMD together dominate the market for the ”x86” processors that power most PCs. But Intel has traditionally held the lion’s share of the x86 market, providing the chips for four out of every five PCs sold.

AMD, whose manufacturing costs are higher than Intel’s, has been hit hard by the ongoing price war between the two companies. Although AMD gained market share against its bigger rival in 2006, Intel has benefited from its own round of cost cuts and the launch of a new line of microprocessors

In January, AMD reported a $574m loss for the fourth quarter, driven by shrinking margins and costs associated with its $5.4 acquisition last year of ATI, a graphics chip maker.

A fall in average selling prices has put pressure on margins across the chip industry. AMD last quarter announced that its gross margins had dipped to 40 per cent, compared with 52 per cent in the third quarter and 57 per cent a year earlier.

AMD said it would provide more details about its first quarter performance when it reports its full results on April 19.

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