AMD predicts losses, introduces K7

Advanced Micro Devices (AMD) on Wednesday warned that it expects to report a second-quarter operating loss of about $US200 million, but tried to sweeten the news by releasing its Athlon, or K7, processor, which it hopes will make up ground on arch rival Intel.

The preliminary results for the quarter ending June 27 also showed revenue for the period will be less than $600 million. For the second quarter last year AMD posted an operating loss of $64.56 million on revenue of $526.53 million. Last quarter, AMD posted a net loss of $128.4 million on revenues of $631.6 million.

The continued losses stem directly from a price-cutting war with Intel that W. J. Sanders III, AMD chairman and chief executive officer, described as a "blood bath."

However, AMD is betting that the high-end, Athlon processor will turn its fortunes around, Sanders said. The company will ship thousands of the processors this quarter and expects to ship hundreds of thousands more in the next quarter, he said.

The Athlon is AMD's seventh-generation microprocessor. The 600MHz version is priced at $699, the 550MHz Athlon is priced at $479, and the 500MHz version is priced at $324, each in 1,000-unit quantities, the company said in a statement. End-user systems based on the processor are planned to be available in the third quarter, the company said.

The Athlon represents AMD's entrance into the market of high-end processors, Sanders said. "I wouldn't expect to see the K7 in sub-$1,000 computers," he said."We are trying to hit high-end price points of about $1,200 per machine and above." AMD will not cut prices for the K7, he added.

Until now, Intel controlled the high-priced processor market, which allowed it to cut prices of other, cheaper processors, industry analysts said.

"AMD never had a high-end processor to help offset price reductions by Intel at the low end," said Nathan Brookwood, an analyst at Insight 64, a Saratoga, California, consulting and research firm.

Intel's processors range from the high end Xeon, to middle range Pentium processors to low end Celerons. Intel has cut prices for the Pentium and Celeron processors, with the Celerons priced as low as $70, analysts said.

However, AMD's Athlon now offers higher clock speed and performance than Intel's Xeon processor. In addition, Intel's Willamette processor for high performance desktop PCs, slated to match the Athlon, will not be available until sometime next year, said Mel Thomsen, director of consulting and senior analyst with MicroDesign Resources in Sunnyvale, California.

Despite its problems, AMD should be able to show better results with the introduction of the Athlon, Thomsen said. "AMD's going to make it," he said. "If Intel tries to cut prices at the high end, its (profit) margins will suffer."

Both Brookwood and Thomsen had business relations with AMD and Intel within the last 12 months, although they are not currently working with the companies, they said.

AMD shares on the Nasdaq stock exchange closed today at $18.187, down 1 point, or 5.5 percent.

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