AMD to Miss Q1 Revenue Projections

AMD’s shares were down today on news that it would miss its previous revenue guidance of $1.6 to $1.7 billion USD for Q1 2007. Despite admitting the shortfall, AMD did not disclose exactly how much it expects to come up short for the quarter.

“If things are not going as planned, companies are obligated to adjust their guidance as they see fit. This way, investors are not blindsided after the fact,” said Nicholas Aberle, Senior Vice President of Equity Research, Caris Company.

AMD CEO Hector Ruiz tried explaining today at the Morgan Stanley Technology Conference why things went sour for AMD in Q1.  “In a very short period of time, we went from being four years ago a significant player whose vast majority of products went to the channel distribution and not the OEM channel. In a very short period of time that has flipped to the point now where a vast majority of our products go to OEMs and less to distribution,” said Ruiz. “That sort of transition frankly occurred in our view probably faster than we had planned.”

Ruiz went on to explain that AMD expected for manufacturers to use a larger share of processors than the channel towards the end of 2006/beginning of 2007 and was prepared to serve them. In reality, that didn’t happen and OEM were sitting on unused processors while the channel was asking for more.

“We made a strategic risk on how we shifted our capacity to serve our customers and unfortunately some of our customers were not able to meet those very aggressive growth areas that they had so when we shifted that, we were not able to recover as fast this quarter as we would have liked,” Ruiz continued. “That issue should be quite alleviated this year because we have a lot more capability this year delivering products and should be able to serve both the fast-growing OEM portion of our business and also continue to serve the channel as we always have before.”

AMD has seen an increase in processor marketshare over the past few years at the expense of “significant lower” average selling prices (ASPs) – especially in Q4 2006. “ASP erosion is very intense right now, and number two, AMD is losing share.  Add that up and you have a pretty bleak market outlook,” said Aberle. The company did, however, see its marketshare rise from roughly 15% in 2004 to 25% by the end of 2006.

Despite the road bump that that the company has experienced in Q1, AMD is confident that the rest of the year will go more smoothly. The company just recently released its 690G and 690V integrated motherboard chipset and is set to launch its native quad-core Barcelona processors in the second half of this year.