AMD Shares Plunge 10 Pct.

Shares of Advanced Micro Devices Inc. fell more than 9.5 percent Friday, a day after the world's No. 2 microprocessor maker said plunging computer-chip prices hacked into the company's fourth-quarter results.

AMD warned late Thursday that operating income for the quarter -- excluding business units and charges related to newly acquired graphics chipmaker ATI Technologies Inc. -- is expected to be "positive but substantially lower" than in the third quarter.

Sunnyvale-based AMD blamed the decline on "significantly" lower average selling prices in the quarter for microprocessors, which act as the core calculating engines in computers. Unit sales were up, but were offset by the falling prices, AMD said. The company did not provide details.

Shares of AMD dropped $1.92 to close at $18.26 in Friday trading on the New York Stock Exchange. Its much larger rival, Intel Corp., gained 21 cents to close at $22.13 on the Nasdaq Stock Market.

AMD also said that revenue for the quarter ended Dec. 31 -- excluding ATI-related segments -- is expected to increase about 3 percent from the $1.33 billion reported in the previous quarter.

AMD is scheduled to report its fourth quarter earnings on Jan. 23. On average, analysts have been expecting the company to earn 22 cents per share on $1.85 billion in total sales.

Some of AMD's woes in the quarter can be traced to a price war with Intel as AMD battles inch-by-inch to capture new customers and market share.

AMD has steadily stolen market share away from Intel with processors that some customers and analysts have viewed as faster and more energy-efficient than Intel's offerings.

AMD has also inked deals with once-exclusive Intel customers like computer-maker Dell Inc.

But Intel has taken dramatic steps to halt AMD's encroachment and reverse falling profits.

Intel has slashed the price on the company's older chips and introduced powerful new chips with a new design that vastly reduces energy consumption while boosting power.

In September, Intel announced a massive restructuring calling for the elimination of 10,500 positions to streamline its operations. The cuts are expected to save Intel $3 billion per year by 2008.

"We were surprised at the magnitude of AMD's miss," wrote Prudential Equity analyst Mark Lipacis in a note to investors Friday. He also said doesn't expect the price war with Intel to ease any time soon.

Citigroup analyst Glen Yeung wrote that the pressure on server processor pricing means it will take longer than expected for AMD's gross margins to improve from what he called "weak" levels in the third quarter.

Morgan Stanley analyst Mark Edelstone said he expects new PC and server processors from AMD to help the company compete with Intel, but that he is still concerned about the affect the ATI integration will have on the business.


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