AMD reports 4Q loss on acquisition costs

Advanced Micro Devices Inc. has scored some of its most dramatic victories against archrival Intel Corp. over the past year with soaring sales of the high-margin server chips that help power corporate networks.

But AMD's stock price tumbled more than 4 percent Tuesday after the company said sales of those profitable processors flattened in the fourth quarter and suffered from "significantly" lower selling prices because of a brutal price war with Intel.

AMD's stock fell 75 cents to $16.76 in after-hours trading after the company reported a net loss of $574 million, or $1.08 per share, for the quarter that ended Dec. 31. In the same quarter last year, AMD earned $96 million, or 21 cents per share.

Before the report was released, AMD shares dropped 2 cents to close Tuesday at $17.51 on the New York Stock Exchange.

Most of AMD's red ink stemmed from expenses related to its $5.4 billion acquisition of graphics chip maker ATI Technologies Inc., a deal that closed in October and is seen as eroding a key advantage for Intel.

The results include $550 million, or $1.04 per share, in acquisition-related charges and $27 million, or 5 cents per share, in stock-based compensation expense.

Revenue for the quarter was $1.77 billion, compared with $1.84 billion at the same time last year.

Analysts were expecting AMD to earn, on average, 10 cents per share on $1.74 billion in revenue for the quarter, according to a survey by Thomson Financial.

Analysts said they were concerned AMD's dreary financial report could portend more trouble ahead for the Sunnyvale-based company as it fights to maintain its hard-won market-share gains against Intel, the world's largest computer chip maker.

Doug Freedman, an analyst with American Technology Research, said AMD executives failed to address key issues on the conference call about how they intend to combat the mounting price threat from Intel and its line of competitive new chips.

"I was disappointed that they have not communicated a recovery plan in regards to profitability," Freedman said. "They have just said, 'We're going to buckle down and we're not satisfied with our financial performance.' They haven't elaborated, and they haven't laid out a battle plan."

Hector Ruiz, AMD's chairman and chief executive officer, said on a conference call that AMD had underestimated pricing and competitive pressures, forcing the company to "tweak" its business model to prosper. Ruiz did not elaborate.

Ruiz said the company is currently focused on cost controls, a new design for its computer chips and its transition to a more advanced manufacturing technology to better compete with Intel.

"We have actually forced the competition to become more efficient," Ruiz said. "But in doing so, it made us realize that we have to raise our own efficiency to a higher level."

For the year, AMD said it lost $166 million, or 34 cents per share, on $5.65 billion in revenue. The company said it expects revenue in the range of $1.6 billion to $1.7 billion in the first quarter.

AMD's troubles come after a year of dramatic market-share gains at Intel's expense.

According to Mercury Research, AMD has lured about 5 percent of the overall computer chip market from Intel over the past year.

Most of those gains have come in the high-margin server and laptop chip markets, areas Intel has traditionally dominated but whose chips in recent years were seen as too power-hungry compared with AMD's offerings.

But Intel fired back last year with a new line of chips that boosted performance while reducing energy consumption. Intel also beat AMD to market with its "quad-core" chips, which have four computing brains instead of previous lines with just one or two.

AMD is expected to introduce its own quad-core chips this year.