AMD issues Q3 revenue warning

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AMD issues Q3 revenue warning

Advanced Micro Devices (AMD) has lowered its estimates for its third-quarter revenue as analysts warned the company will have to secure additional financing to survive beyond the expected launch of its Hammer processors in mid-2003.

The company said its third-quarter sales will be about $500m (£319m), down from estimates of slight growth from AMD's second-quarter revenue of $600m (£383m). Significant reductions in AMD's inventory of processors due to oversupply reduced third-quarter sales, the company said.

AMD is struggling to manage its debt and cash flow amid a slowdown in sales of PCs. Assuming the company posts $500m in revenue for the third quarter, and assuming the PC market grows slowly into 2003, AMD will burn through its remaining cash in 5 quarters through its efforts to pay off its long-term debt without dipping into its credit line, said Eric Ross, director of electronics research at market research company Investec in New York.

"We doubt the company can survive without a substantial financing event," said Ross in a research note. AMD is spending $200m in cash each quarter, he said.

The company's options include restructuring its debt, or borrowing against assets, including its Dresden, Germany, fabrication plant, Ross said. "For safety's sake, they would want to raise around $500m," he said.

Ross believes AMD's technology is competitive with rival Intel's, but the larger chip maker is in a far better financial position. Intel has $10.6bn in cash available, which means the company could survive with zero revenues for 5 or 6 quarters, he said. Intel is also profitable, while AMD lost $185m in the second quarter of 2002.

The financial situation at AMD handicaps it in the battle against Intel for the processor market, Ross said.

"I think they've done a great job in staying competitive, but can they keep it up? If the PC market continues to be weak, and the flash market continues to be weak, that's a big problem for them. They're not going to lose much market share, and their technology is competitive, but they won't be able to make huge investments in new designs or process technologies," he said.

The company will release its third-quarter financial results on 16 October.

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