The continued weakness in the PC market has taken its toll on Advanced Micro Devices Inc., as evidenced by the company's second lowered revenue guidance in less than a month.
The Sunnyvale, Calif.-based microprocessor maker announced early this morning that it expects to report sales of approximately $600 million for the second quarter ending June 30. Just weeks before, on June 18, AMD forecast that second-quarter sales would be in the $620 million to $700 million range, adding that at these depressed levels, it anticipated a substantial operating loss for the quarter.
The company's initial projection, made during its first quarter earnings call, was for second quarter sales to be within the $820 million to $900 million range.According to Multex investor, analysts expected AMD to report a second quarter loss of 9 cents per share on sales of $845 million. Those estimates had been revised to a loss of 36 cents per share on sales of about $657.4 million.
In its mid-June update, AMD chief financial officer Robert Rivet attributed the company's woes to broad weakness in the personal computer market. He said that the processor business, particularly in Europe and North America, remained weak.
The company declined to comment following its most recent earnings revision, citing it SEC-mandated quiet period.
"It's a story where you have a very weak PC environment in general," said Michael McConnell, an analyst at Pacific Crest Securities Inc., Portland, Ore. "There's been talk of an inventory bulge in the high end."
McConnell also cited speculation that AMD is losing market share to Intel-and will continue to do so through the end of the year-until AMD shifts to its more powerful Hammer processor.
"Intel, with its Pentium 4, has a more scalable processor, McConnell said. "It allows them to introduce more high-end processors at a quicker pace. AMD has hit the ceiling with its Athlon processor. Intel is trying to move the market up and out of AMD's reach."
Steven Fortuna, a analyst at Merrill Lynch & Co. Inc., cited more fundamental reasons for the PC market's declining sales. Prior to AMD's announcement, Fortuna reduced his 2002 worldwide PC unit growth forecast to 2.5%, from 10.5% earlier in the year, and projected a 6.7% decline in industry revenue for the year to $173.2 billion.
Fortuna cited several reasons for the firm's reduced PC forecast, including a breakdown in consumer confidence which could result in lower demand, continued corporate hesitation toward IT investments, potential slowed spending in Europe in the December quarter, and the potential for a disappointing back-to-school market.
"We'll see a replica of what we saw last year," Pacific Crest's McConnell said. "There has been zero indication of a back-to-school build. OEMs and white-box manufacturers will wait until the last minute to start builds for the holiday season."
But there may be a light at the end of the tunnel. In announcing his 2003 forecast, Fortuna said he expects worldwide PC unit growth to be about 15% as companies give in to long-deferred computer upgrades.
"Several important growth drivers have been delayed into next year," he said in a report. "Asia-Pacific [will] lead the way, up 20% (driven partially by China), with the U.S. up 15.5%, Japan up roughly 14%, and Western Europe trailing the pack with 8% unit growth. The rest of world region, including Eastern Europe, Canada, and Latin America, should be up 17.5% in 2003."