SAN FRANCISCO – Microchip maker Advanced Micro Devices Inc. warned on Thursday that fourth quarter revenue would fall short of analysts’ estimates and operating earnings would be substantially lower than in the third quarter, citing lower average prices for its chips.
AMD said that it now expects revenue in the fourth quarter to rise about 3 percent from the third quarter, implying revenue of about $1.37 billion.
In mid-October, Wall Street analysts, on average had projected fourth-quarter sales of $1.44 billion, which excluded revenue from graphics chip maker ATI, which AMD acquired later the same month.
It said fourth quarter operating income, excluding acquisition related charges and certain results from the purchase of ATI, “is expected to be positive but substantially lower than in the third quarter.”
Shares of AMD, Intel Corp.’s smaller rival in the processor business, fell more than 2 percent in extended trade after the company issued a two-paragraph statement late in the day.
AMD also saw large declines in its average chip selling in the third quarter as rival Intel slashed prices on older processors to make way for its newer Core Duo and Core 2 Duo chips that use its latest chip-design architecture.
“To try and clear that more-or-less obsolete inventory, Intel has been doing some really low-priced deals, mostly in the desktop PC arena and that’s kept AMD’s pricing lower than it ordinarily would have been,” said Nathan Brookwood, president of Insight64, a Silicon Valley consulting firm.
Analysts currently expect Sunnyvale, California-based AMD to have fourth-quarter revenue of $1.84 billion, including ATI revenue, and earnings per share before items of 23 cents.
AMD said that its gross margin and operating income in the fourth quarter were “impacted by significantly lower microprocessor average selling prices, which largely offset a significant increase in unit sales.”
Microprocessors are the primary computing engines of PCs. Both AMD and Intel have moved to chips that are known as “dual core,” meaning they effectively have two processing engines per chip, compared with one historically.
The newer designs are more powerful than older ones, yet consume far less power and are more energy-efficient. The dual-core designs also make for notebook PCs with longer battery life than previous generations.
Intel has been working hard since rolling out the Core Duo and Core 2 Duo chips to regain market share lost to AMD, which has in the past several years been an effective rival with its Athlon and Opteron family of chips.
While other analysts have pointed to a “price war” between Intel and AMD in a bid to fight it out for market share points, Intel Chief Executive Paul Otellini, and Brookwood, have instead pointed to Intel’s need to clear out the old to make way for the new, in a constant cycle of the processor industry.
Intel entered the fourth quarter with a large amount of its first-generation dual core chips using the older Netburst chip architecture, Brookwood said.
“They still had a fair amount of that older product,” Brookwood said.
In extended trade, shares of AMD, which said it expects to report fourth-quarter results on January 23, fell to $19.74 from $20.18 at the close.
Shares of Intel, which reports its fourth-quarter results next week, fell 8 cents in extended trade, to $21.84.