Sunnyvale (CA) - During a conference call with analysts following the release of its Q4 2006 results, AMD acknowledged that Intel is heavily going after server market share and sales. As a result, AMD is faced with decreasing average selling prices in a segment that has enabled the firm’s phenomenal growth in past quarters.

Semiconductor companies are traditionally very cautious about providing any future business opportunities due the industry’s extreme dynamics and volatility and AMD’s most recent quarter result may serve as an example how quickly market conditions can change within just a few months.

Overall, AMD had great success in terms of processor shipments during 2006. Compared to 2005, Opteron shipments jumped by 135% and mobile CPUs gained 78%. However, while AMD was able to use its performance and performance/watt lead especially in the server and desktop markets to charge significantly higher prices for its processors in the first half of the year - and ended up depending on those high Opteron margins - Intel increased the pricing pressure on the company with the outgoing Netburst chip architecture on the low-end as well as with the new Core architecture in the high-end desktop and 1P/2P server segment. (Read about AMD’s Q4 2006 result)

Perhaps anticipating questions from concerned analysts, AMD chief executive Hector Ruiz concluded his portion of the conference call stating that the company will be spending time to improve the economics in its business model, adding that the "pricing competition has been tougher expected."

Those pushing questions from analysts came and AMD executives conceded that there may be more pressure to come for the current Q1 period. Henri Richard, who is heading up AMD’s sales division, described the Q4 competitive scenario as "very severe" with "headwinds" making the closing of the largest deals more difficult. He expects the first half of 2007 to remain "extremely competitive."

Asked if the company is willing to give up pricing to gain or keep market share, Richard responded that "there is no backing away from this [strategy]." Several executives pointed to the fact that OEMs expect AMD to expand on its production capacity, but multiple analysts were wondering if the company can stay profitable while doing that. In response, AMD officials said that it is building a long-term strategy to leave the niche it has been locked down into : "There is no long-term model that allows us to be profitable in a niche," president Dirk Meyer said.

During Q4, AMD still commanded higher average selling prices for Opterons than Intel for its Xeon server chips.

AMD reduced the revenue guidance for 2007, but remains "bullish" on increasing shipment numbers. All eyes are now on the firm’s "Barcelona" quad-core Opteron processor, which will be introduced in mid-2007, ahead of the "Agena" desktop quad-core CPU. AMD promises that Barcelona will achieve performance and performance-per-watt leadership over Intel’s products and will be introduced for prices comparable to the first generation of dual-core Opteron products.

AMD mentioned that it plans to complete the transition to 65 nm processors in 2007 and lay the groundwork for its first 45 nm processors in the first half of 2008.

Following the release of its Q4 results, AMD’s stock dropped by about 70 cents or about 4% - what would indicate a new 52-week low, if the stock opens around that number on Wednesday. The company hit a high of $42.70 in February 2006.

The firm’s market capitalization was about $9.6 billion at market close on Tuesday, down from about $23.4 billion in February of 2006.