AMD posts $611M Q1 net loss, 30% sales drop

By Colleen Taylor, Contributing Editor -- Electronic News, 4/20/2007

The year started off on the wrong financial foot for Advanced Micro Devices Inc. (AMD), as the Sunnyvale, Calif.-based microprocessor maker posted what its CFO called a "disappointing and unacceptable" Q1 financial report.

AMD reported Q1 revenue of $1.23 billion, 30 percent down from $1.77 billion in sales for Q4 2006 and 7 percent lower than $1.33 billion in Q1 2006.

AMD posted a net loss of $611 million, down from its $576 Q4 net loss and its Q1 2006 net income of $185 million. The company also posted a Q1 operating loss of $504 million, up slightly from the $529 million loss it posted in Q4, but still far from the $259 million operating income it made in Q1 2006. AMD's Q1 gross margin was 31 percent, down from 40 percent in Q4 and 59 percent in Q1 2006.

The chipmaker's Q1 returns are in particularly stark contrast to those of its rival Intel Corp. The Santa Clara, Calif.-based Intel posted Q1 operating income of $1.7 billion, down 3 percent from Q1 2006 but up 13 percent from Q4 2006. Particularly strong was Intel's Q1 net income at $1.6 billion, up 19 percent fro Q1 2006 and up 7 percent from Q4 2006.

"After more than three years of successfully executing our customer expansion strategy and significantly growing our unit and revenue base, our first quarter performance is disappointing and unacceptable," Robert J. Rivet, AMD's CFO said in a statement. "We are aggressively addressing the issues that led to our significant revenue decline."

Indeed, last month the company announced plans to undertake a restructuring of its business model aiming to increase operational efficiencies and lower its operating cost structure. AMD said that as part of the plan it will reduce 2007 capital expenditures by approximately $500 million, cut back on discretionary expenses and limit hiring to critical positions.

The plan will not make immediately palpable effects, however. AMD said that it expects its Q2 revenue to be "flat to slightly up" from its Q1 results.

Despite the disappointing results, Wall Street seems to be viewing AMD with slight optimism, perhaps for its restructuring plans. In stock market trading Friday morning, AMD's share prices were up around 2.5 percent from Thursday night's close, to a high of $14.70. Even so, those prices are a far cry from the company's 52-week high price of $34.96.