Advanced Micro Devices Reports Unexpected Profitability in Third Quarter

Strategic Insights -

Despite industry-wide concerns about a slump in the microprocessor market, Advanced Micro Devices Inc. (AMD) reported an unexpected return to profitability in its third quarter, boosted by strong sales of its K6-2 microprocessor. This accomplishment marks the second consecutive surprise profit announcement from a major chip company, with Motorola Inc. also reporting better-than-expected earnings on Monday. Analysts attribute the positive reports to a potential rebound in the chip industry, particularly for companies supplying personal computer manufacturers.

Key Takeaways:

  • AMD's K6-2 microprocessor drove the company's profitability in the third quarter, with sales increasing 15% to $685.9 million from $596.6 million in the same period last year.
  • Despite facing inventory glut challenges, PC manufacturers have worked through their excess stock, leading to improved microprocessor sales for AMD.
  • Non-microprocessor products sales were flat during the quarter.
  • AMD's profit of $1 million, or 1 cent a diluted share, exceeded analysts' expectations of a loss of 11 cents a share.
  • Motorola expects a 7-9% increase in chip sales worldwide in 1999, compared to an 11% drop in 1998, marking a potential turnaround in the chip industry.
  • Advanced Micro gained market share due to its superior technology, with the AMD-K6 family processors capturing 31% of the US retail market for desktop systems in August and 54% of the sub-$1,000 systems market.
  • On a global basis, Advanced Micro's share of the total microprocessor market was in the low teens, with the company shipping about 4 million microprocessors in the quarter, compared to Intel's 23 million.

Statistics:

  • AMD's profit of $1 million in the third quarter represents a reversal from a loss of $31.7 million in the same quarter last year.
  • Sales increased 15% to $685.9 million from $596.6 million in the third quarter of 1997.
  • Analysts surveyed by the First Call Corporation had expected Advanced Micro to post a loss of 11 cents a share.
  • Motorola expects a 7-9% increase in chip sales worldwide in 1999.
  • AMD's share of the total microprocessor market was in the low teens globally.
  • The company shipped about 4 million microprocessors in the third quarter, compared to Intel's 23 million.

Sources:

  • "Motorola's Chip Sales Seen Rising, Earnings Not So Hot" by Mark Maxwell, Los Angeles Times, October 19, 1998 (no date mentioned)
  • "AMD: Big Sell: Sony Firms Vaio PCs with AMD Processor", PC Week, October 19, 1998
  • "AMD's K6-2, 3DNow, and a Linux OS", PC Week, October 19, 1998
  • "AMD Is Now Profitable, Beats Expectations", Internet Wire, October 19, 1998