SUNNYVALE, Calif. — Shares of Advanced Micro Devices Inc. continued falling today, a day after the company said it would lose money in its fiscal first quarter because of price wars in its key microprocessor business.
AMD stock fell $2 to $16 per share in morning trading, after falling another $2 Thursday before trading was halted. On Thursday (Feb. 4), chief executive officer W.J. Sanders III said the company would suffer an unspecified loss in the quarter following one in which the company reported a penny-a-share profit. AMD has hustled to fix yield problems on the K-6 MPU at Fab 25, its flagship fabrication facility in Austin, Texas. "We will not, however, realize the benefits of the change in production output until the back half of the current quarter," Sanders said.
AMD is reassessing its strategy in the wake of Intel Corp.'s announcement that it was moving its next round of CPU price cuts from Feb. 28 to next Monday (Feb. 8).
The price wars and stock woes aren't AMD's only problems. Rich Forte, who served as president of Vantis Corp., AMD's programmable-logic unit, abruptly quit Monday. Industry sources and sources close to AMD said Forte was asked to resign, variously because Vantis had declining revenues or because he ran the operation too independent of AMD. Rich Previtte, who is chairman of Vantis, will take over as interim president and a formal search is underway to replace Forte.
A Vantis spokeswoman said Forte's departure surprised everyone at the company.
In the quarter ended Sept. 27, Vantis reported $50 million in net sales, down from $62 million in the same quarter in 1997. Forte was credited with trying to make Vantis, which relies on older simple-PLD lines and some complex-PLD business, competitive in the hyper-competitive programmable-logic world. But Vantis, as other smaller PLD vendors have found, met rough sledding in a business where Altera and Xilinx dominate and seats are hard to wrestle from users.
"He tried to run it as an independent company, which you need to do in that situation," said one source close to AMD. "But they're [AMD] very big on following orders."
As for corporate AMD, the price cuts, combined with the huge capital outlay and debt load the company shoulders to ramp or equip three major new fabs, is taking a toll.
Thomas Kurlak of Merrill Lynch lowered his investment opinion on AMD to "neutral" from "accumulate," citing lower-than-expected average selling prices for the company's K6 microprocessors in the current quarter.
"Demand in the PC market is fairly healthy, but the price points are not there for AMD," said one analyst. "Intel is eating up the low end of the PC market with the only competitive weapon they have right now, price."
Ashok Kumar of Piper Jaffrey (Minneapolis) said the company had a window of opportunity last year to gain significant market share, but lost it when it encountered manufacturing problems that delayed volume shipments of the K6.
Last week, AMD took the unusual step of selling its prized headquarters building — with its Romanesque design and bust of Sanders in the reception hall — for $80 million to a real estate outfit in a sale-leaseback arrangement. Some observers suggested the move was meant to generate some quick cash for the company, but others played it down, saying Sanders has never been in the real estate business and the Silicon Valley commercial-real estate market is hot now.
AMD's long-term debt doubled to $1.3 billion in the quarter ending Sept. 27 from roughly $660 million in the year-ago quarter, due to capital installation at its $1.9 billion Fab 30 in Dresden, Germany, and Fab 25. The company has also poured money into its FASL II joint-venture fab with Fujitsu Ltd. in Aizu-Wakamatsu, Japan. That site is expected to be completed in the second quarter of 2000.
