AMD's price-cutting strategy backfires

SAN JOSE, Calif. — Call it the tale of two processor makers: Intel Corp. continues to gain momentum in the microprocessor market, while Advanced Micro Devices Inc.'s apparent price-cutting strategy has backfired, according to an analyst.
''AMD is taking prices down to levels the industry has never seen before in the low-end,'' said analyst Doug Freedman of American Technology Research Inc. ''We believe poor product mix and excessive channel inventory are limiting the impact of price cuts. We also believe that recent price cuts have been pushed out as they have proven unsuccessful in clearing the inventory or boosting top-line results.''

The moves have hurt AMD, not Intel. ''Despite an uptick in news chatter surrounding the Intel/AMD price war, we believe ASPs remain pressured by AMD's hell-bent strategy on getting to 30 percent MPU market share (24 percent at present) at any cost and as quickly as possible,'' Freedman said. ''AMD is mostly cutting prices in the low-end, which won't have a terrible impact on Intel in the longer term, but large amounts of channel inventory will undoubtedly have some impact on Intel in the near-term results.''

Rival Intel is seeing other results. ''We believe Intel has regained the high ground, with better high performance products in the mobile, desktop, and server market,'' he said. ''Intel is also aggressively promoting new products with platform wins supporting the new product launches.''

As a result, it's a tale of two quarters for Intel and AMD. ''We believe the quarter is tracking to plan for Intel, while upside is likely limited by aggressive pricing at the low-end of the market,'' Freedman said. ''We believe AMD double stuffed the channel in 4Q06 and January '07, resulting in excess inventory that even aggressive prices are unable to clear.''

In fact, AMD faces a potential cash crisis amid rumors about a private-equity buyout for the microprocesor maker, according to Freedman. . AMD (Sunnyvale, Calif.) needs cash amid a bitter price war with Intel (Santa Clara, Calif.).

Recently, AMD reported fourth quarter 2006 revenue of $1.77 billion, an operating loss of $527 million, and a net loss of $574 million, or minus $1.08 per share. In the previous period, AMD posted a profit of $119 million on sales of $1.328 billion. The company reported a profit of $268 million on sales of $1.351 billion a year ago.

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