AMD warns on revenue

SAN FRANCISCO (Reuters) - Advanced Micro Devices Inc. (AMD.N), the No. 2 microprocessor maker, warned on Monday that it will likely miss its quarterly revenue target as it loses market share among computer resellers, a traditional bulwark of its business.

It was the second quarter in a row AMD has shown signs of trouble as it wages a bruising price war with Intel Corp. (INTC.O), a fight that has eroded profits at both main rivals in the $30 billion processor industry.

The two Silicon Valley combatants said they expected competitive pricing to continue this year, with Intel Chief Executive Paul Otellini hinting he is ready to dig in his heels to stop AMD's overall recent market share gains.

"I've always been a market share guy," Otellini said in remarks Webcast from a Morgan Stanley investment conference. "In order to generate the scale at which we operate our business, having a very significant market share is critical."

Intel's total market share among desktop, laptop and server computers fell to 74.4 percent in the fourth quarter of 2006, while AMD's rose to a record 25 percent, according to market research firm Mercury Research.

However, AMD said on Monday that its first-quarter revenue would fall short of the $1.6 billion to $1.7 billion target it gave in January. Wall Street, on average, was expecting revenue of $1.65 billion, according to Reuters Estimates.

AMD Chief Executive Hector Ruiz, also speaking at the Morgan Stanley conference, said direct sales to PC makers had grown dramatically in a short time, but faulted his company for failing to focus on its traditional customers, the computer resellers -- smaller retailers and PC assemblers the industry refers to as "the channel."

"We let down our channel partners by not being able to support them as much as they wanted," Ruiz said. "I think going into second quarter that we can regain the position we had before."

Last quarter, AMD posted a surprise net loss as the price war with Intel took a heavier toll than expected.

Ruiz sounded a bullish tone on the long-term prospects for the processor industry, saying the spread of computing into the entertainment, education and health industries meant demand could grow by 20 percent a year or more.

AMD shares closed down 23 cents, or 1.6 percent, at $13.95 on the New York Stock Exchange, after falling as low as $13.53 following the revenue warning. Intel shares fell 0.6 percent to end at $19.11 on the Nasdaq.

Stifel Nicolaus analyst Cody Acree said the drop in AMD's share price may have been tempered by the fact that many investors already had low expectations.

"I think it's a continuation of share loss back to Intel and aggressive pricing in an effort to maintain share," Acree said. "I don't think anybody was expecting strength from

AMD."

Also on Monday, the Semiconductor Industry Association said sales of all kinds of microchips rose more than 9 percent from a year earlier, data Citigroup analyst Glen Yeung cited as some evidence that the industry is set for a rebound.

Yeung said PC processor prices rose 4.6 percent in January, as calculated on a three-month moving average, while sales of processors rose half a percent, compared to a 5-year average decline of nearly 3 percent.

"While mix remains a main wild card, price trends we have observed do not portend a major price war," Yeung said.

(Additional reporting by Sinead Carew in New York)