Listen to this article
Shares of Advanced Micro Devices fell 14 per cent in after-hours trading on Wednesday after it reported a significant decline in margins caused by price-cutting in its battle with its bigger rival Intel.
AMD said third-quarter gross margins fell to 51.4 per cent, down from 56.8 per cent in the second quarter. It said the decrease was largely due to lower average selling prices (ASPs) for its processors for desktop PCs.
“This quarter we bounced below our [preferred] zone of 55 to 60 per cent for the first time in a long time,” admitted Bob Rivet, chief financial officer, in a conference call with analysts.
On Tuesday, Intel reported its margins fell to 49.1 per cent in its third quarter, down from 59.7 per cent a year earlier. It also said it had been forced to write off $100m of its inventory of older processors.
Intel has spent the summer switching to a new architecture and processors with two cores or brains, leading to it cutting prices on its older inventory to try to clear it.
AMD’s third-quarter results suggested it had also been forced to cut prices to compete with Intel’s new more powerful processors as well as with its older, cheaper ones.
“The ASP is hard to have control over because we are in a competitive environment,” Dirk Meyer, chief operating officer, told analysts.
AMD shares, which had closed 1 per cent lower at $24.23 in New York, fell a further 14 per cent in after-hours trading after the results were announced.
This was despite AMD beating Wall Street’s top-line expectations of 24 cents a share in profits from $1.31bn in sales. It reported net income of 27 cents a share or $134m on revenues of $1.33bn.