AMD misses earnings target despite Opteron sales

Growing demand for its Opteron server chips pushed Advanced Micro Devices Inc. (AMD) to greater second quarter profits, but the company failed to meet financial analyst expectations.

AMD on Thursday reported a profit of US$89 million for the quarter, far above its mark of $11 million last year.

Despite the profit, AMD's earnings of $0.18 per share missed a forecast of $0.22 per share on revenues of $1.25 billion from analysts surveyed by Thomson Financial.

AMD, of Sunnyvale, California, posted $1.22 billion in revenue for the quarter ending July 2, up from the $797 million reported by the company's processor division last year. Including revenue from its Spansion flash memory unit, which was spun off in December 2005, AMD reported $1.26 billion in the year-ago quarter.

Strong demand for AMD's Opteron server chip accounted for the 53 percent jump in revenue, AMD said.

Opteron chip sales alone rose 141 percent year over year, Chief Financial Officer Robert Rivet said in a conference call with investors.

"We are well on our way to meeting our goal of 30 percent year-end server market share," he said.

He doesn't have far to go. As of the first quarter of 2006, AMD had 22.9 percent share compared to Intel's 76.8 percent, comparing units sold of Opteron versus Xeon, said Shane Rau, an analyst at IDC. The remaining 0.3 percent belongs to IBM Corp.'s G5 processor.

"The market had been hungry for a second source for a long time. That alone gives you 10 percent, just for providing a product that competes on price. If you add strong performance and rich feature sets, then you can gain additional share, and I think that's what we're seeing with AMD," he said.

The low revenue came as no surprise to Wall Street, since AMD had warned on July 6 that it would come in about nine percent lower than its original revenue target. It blamed slow sales of its Athlon 64 X2 desktop chip and Turion 64 X2 notebook chip.

Those processors could face an even tougher challenge in the rest of 2006, since Intel plans to launch its new dual-core chips including the Conroe Core 2 Duo for desktops, on July 27, and Merom Core 2 Duo for laptops, due in early August.

Intel also tried to strike a blow against Opteron by launching the Woodcrest Xeon 5100 chip for servers in June. In return, AMD plans to launch its "Revision F" dual-core Opteron server chip in August.