UPDATE 3-AMD warns of revenue drop as PC demand crumbles

Thu Oct 11, 2012 5:46pm EDT

* Company blames challenging economy

* Stocks slumps after hours

* Warning is latest in PC industry

By Noel Randewich

SAN FRANCISCO, Oct 11 (Reuters) - Chipmaker Advanced Micro Devices Inc said on Thursday its third-quarter revenue likely fell 10 percent from the previous quarter as a weak global economy and growing preference for tablets slams the PC industry.

AMD's pre-announcement is the latest warning about the PC industry. It follows Intel's warning in September that its quarterly revenue would be much lower than expected.

Tablets such as Apple Inc's iPad, once considered a niche market by Intel and others, are fast gaining consumer acceptance and eating into the sales of laptops and desktop computers, while a slowing global economy is dampening spending in general.

Intel's promotion of premium "Ultrabook" laptops has been less successful than the chipmaker expected. PC makers hope Microsoft's launch of its Windows 8 platform later this month will fuel PC sales.

"We already had a sense the PC industry was sluggish versus expectations and hopes for a pickup from Ultrabooks. Some of this is clearly a pause ahead of Windows 8 as well. So all those factors are in place, and of course the uncertainty surrounding PC versus tablets," said Suji De Silva, an analyst at Think Equity.

AMD said gross margins in the quarter ending in September w ould be about 31 percent, less than the 44 percent previously expected, because of lower prices and a write-down of $100 million due lower-than-expected demand for some products.

Kim Forrest, senior analyst with Fort Pitt Capital Group, said AMD was hurting more than tech firms that were less exposed to PCs, but she warned that other "big tech" stocks could face pressure after AMD's warning.

"I think everybody in tech is going to get tarred with the bad-performance brush tomorrow," she said.

AMD had previously expected its third-quarter revenue to fall 1 percent from the second quarter, plus or minus 3 percent.

Analysts, on average, had expected AMD's revenue to fall 2 percent in the third quarter, compared to the prior quarter, according to Thomson Reuters I/B/E/S.

AMD is due to report its financial results on October 18.

AMD shares fell 7.8 percent after hours to $2.95 after closing 1.59 percent higher at $3.20.