AMD forecasts $200M loss

December 14, 2000 —

Advanced Micro Devices Inc. (AMD) yesterday warned that it expects to report a
second-quarter operating loss of about $200 million but tried to sweeten the news by
formally releasing its Athlon, or K7, processor, which it hopes will make up ground on
arch rival Intel Corp.

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 revenue of $631.6 million.

Price war casualty

The continued losses stem directly from a price-cutting war with Intel that W. J.
Sanders III, AMD chairman and CEO, described as a "bloodbath."

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 600-MHz version is priced
at $699, the 550-MHz Athlon is priced at $479 and the 500-MHz 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.

Enters high-end market

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 won't
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, Calif., 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, won't be available until sometime next year, said Mel Thomsen,
director of consulting and senior analyst at MicroDesign Resources in Sunnyvale, Calif.
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 past 12 months, although they
aren't currently working with the companies, they said.

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