AMD first casualty of chip price war

The first financial casualty of a price war between the two major microprocessor makers has been suffered by Advanced Micro Devices, whose shares fell as much as 5.8 per cent yesterday on the back of its second-quarter sales warning.

AMD said it expected revenues to be around $1.215bn for the quarter ending June 30 - 9 per cent lower than those of the first quarter.

It had previously forecast sales would be flat to slightly down and consensus estimates among analysts were for revenues of $1.308bn.

AMD blamed lower sales of entry level and mainstream processors for desktop and laptop PCs. Its bigger rival Intel has been aggressively cutting prices in these segments to win back market share, clear out excess inventory and make way for a new generation of processors appearing over the summer.

Intel is itself expected to report its worst quarter in five years on July 19, a day before AMD officially reports its earnings. It has suffered market share losses to AMD and both makers of the dominant “x86” microprocessor family are feeling the effects of weak PC demand.

AMD shares fell to $22.45, down 5.8 per cent, before recovering to $23.44, down 1.6 per cent, at noon in New York. They are down 47 per cent from their peak of $42.70 in February. Intel shares were a cent higher at $18.86 in midday trading.

Joe Osha, Merrill Lynch analyst, said in a note that the shoe had dropped for AMD and its revenue warning was mostly due to “lousy second quarter demand”, with microprocessor revenues for AMD and Intel now expected to be down by an aggregate 14 per cent on the previous quarter.

“The easy days are over for AMD …and even though Q3 may be better, we expect Intel to begin taking share in desktop while defending its dominant position in mobile,” he said.

Intel is introducing its next-generation processors for server, desktop and notebook PCs in June, July and August respectively, while pre-announcing major price cuts for older processors from this month that is pushing out demand into the third quarter.

Sumit Dhanda, Bank of America analyst, said there was a tougher road ahead for AMD. Significant price cuts it made in late June had been too late to save the day and would in turn put severe pressure on its sales and margins in the third quarter, he warned.