July 10, 2012 / 2:06 AM / 6 years ago

AMD warns Q2 sales to take hit on global economic slowdown

SAN FRANCISCO (Reuters) - Advanced Micro Devices AMD.N slashed its outlook for second-quarter revenue after seeing disappointing sales in China and Europe, becoming one of the biggest tech names to date to warn that a global economic slowdown is taking a harsher-than-expected toll.

Shares in chipmaker AMD, a distant No. 2 to Intel Corp (INTC.O) in the PC market, slid 6 percent after the closing bell as it joined software firms Qlik Technologies QLIK.O and Informatica Corp INFA.O in issuing estimates far below market forecasts -- likely harbingers of ugly numbers to come as the earnings season kicks into gear.

PC-related firms have been hit by a slump in demand as smartphones and tablets grow in popularity but AMD’s woes were also seen as at least partly company-specific.

AMD, which logged a first-quarter net loss of $590 million, said second-quarter revenue may plummet 11 percent from the $1.6 billion booked in the first three months of the year, worse than its previous forecast of flat sales to a 6 percent rise.

An 11-percent revenue decline would be the worst quarter-on-quarter fall for AMD since the fourth quarter of 2008, when revenue plunged 35 percent.

Alex Gauna of JMP Securities said AMD’s weakness in China reflects stronger chip updates by rivals Nvidia (NVDA.O) and Intel (INTC.O).

“Both Intel and Nvidia have out-executed AMD,” he said, adding that AMD was suffering more than most in Europe because it caters to the lower-end of the market.

Despite the cut in revenue outlook, AMD reiterated prior guidance for second-quarter gross margin to be flat to slightly up from the previous quarter, saying operating expenses will be about 8 percent less than its earlier forecast.

AMD’s shares have dropped nearly 20 percent in the past year on fears of competition from processors based on ARM Holdings’ ARM.L, which are widely used in the fast-growing mobile market where AMD has struggled to gain a toehold.

    CLSA analyst Srini Pajjuri said the magnitude of AMD’s forecast revenue decline was a surprise but added that competition from power-efficient chip designs were not yet a large factor behind it.

    AMD also faces growing competition from Intel’s newest PC chip, code-named Ivy Bridge. Intel is also starting to build sales of its recently launched Romley server platform.

    Sunnyvale, California-based AMD has also been launching new processors of its own, and recently appointed CEO Rory Read has vowed to improve on long-standing execution troubles.

    Its shares fell to $5.30 in after-hours trade, from a close of $5.62 on the New York Stock Exchange.

    AMD is due to report financial results next Thursday.

    Editing by Leslie Adler and Edwina Gibbs

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