AMD to miss Q1 revenue goal, announces restructuring

Posted by Wolfgang Gruener

Sunnyvale (CA) – AMD today updated its first quarter outlook and mentioned that it will not be able to meet its revenue goals given during the Q4 2006 conference call.

AMD said that it expects revenues in the range of $1.225 billion, which is about 23% below the low end that the company had provided previously. The already dim expectation of $1.6 to $1.7 billion mentioned at the end of Q4 2006 was derailed by “lower overall average selling prices and significantly lower unit sales, especially in the resale channel,” AMD said.

While the company did not confirm that it will be taking a loss for Q1 2007, it does not take much to see that the company will not be able to re-enter the black: For Q4 , the company reported revenues of $1.77 billion and broke about even, when the ATI acquisition charges are excluded. In Q1 2005, the company reported revenues of $1.227 billion and lost $46 million without the ATI staff on board.

AMD’s strategy to keep the pressure on Intel and counter Intel’s Core architecture with lower pricing for its mobile, desktop and server/workstation processors apparently is backfiring, as AMD is seeing its profit margins evaporate. This morning, AMD announced a dramatic price cut of its desktop single- and dual-core processors, leaving the company without a presence in the upper mainstream of the desktop processor market.   

The company said that it plans to restructure its business model to increase operational efficiencies and lower its operating cost structure. In reaction to lower revenues, the firm will reduce 2007 capital expenditures by approximately $500 million, which the company believes will not materially impact capacity plans for the year.

AMD said it will also significantly reduce discretionary expenses and limit hiring to critical positions.

The Q1 result is scheduled to be announced on April 19. AMD's stock was up almost 5% to $13.50 following the announcement.