AMD drastically cuts Q4 earnings forecast

Sunnyvale (CA) - AMD cautioned investors that its Q4 2006 earnings will come in "substantially lower than in the third quarter." Fourth quarter revenues are expected to increase about 3% from the $1.33 billion the company reported in Q3 2006.

AMD said that the fourth quarter margin and operating income were impacted by "significantly lower microprocessor average selling prices, which largely offset a significant increase in unit sales." While more details about the quarter are not expected to surface until the firm releases its Q4 result on January 23, it appears that the processor price-war that was initiated by Intel in the first and second quarter of 2006 is taking its toll on AMD.

In our weekly price/performance analysis of microprocessors, we noticed a considerable decline in retail prices of AMD processors, which was especially apparent in the weeks before Christmas (see, for example, our analysis from December 22). While Intel was able to use its phasing out Pentium D 800 and D 900 series to increase the pressure on AMD, the Core 2 Duo series showed a very stable pricing trend over the course of the past few weeks (see the pricing trend in our December 29 analysis).

AMD expects fourth quarter operating income, excluding ATI-related segments and acquisition-related charges, to be "positive."