AMD chip shipment share falls on inventory correction

Disappointing processor shipment figures for Advanced Micro Devices (AMD) do not paint the complete picture of the company's...

Disappointing processor shipment figures for Advanced Micro Devices (AMD) do not paint the complete picture of the company's third quarter, according to analyst group Mercury Research, which released the figures this week.

Intel once again held a commanding lead in the number of processors shipped into its reseller channel, with 86.8% of the overall shipments, up from 82.8% in the second quarter and 79.2% in the third quarter of 2001.

AMD's share of shipments fell to 11.6% of the market, down from 15.6% in the second quarter and 20% in the third quarter last year.

The drop in second-quarter shipments can be attributed to AMD's decision to ship fewer processors in the third quarter to relieve a large oversupply of its processors in the channel, said Dean McCarron, principal analyst at Mercury Research.

"AMD's momentum is not as strong as it was a year ago, by any measure. But they are not losing momentum the way the third-quarter figures would indicate," he said.

Both Intel and AMD experienced inventory problems this year, as they increased production following a record first quarter in terms of shipments.

The first quarter is typically a slow one, as PC buying drops off after the holiday season, but the strong performance in this year's first quarter had Intel and AMD's customers talking about a resurgence of the processor and PC markets.

However, it became clear in the second quarter that a recovery was not going to take place soon and it proved difficult for manufacturers to cut output levels quickly. Resellers for both companies were left with processor stocks that were not taken up in PCs.

Intel was better equipped to handle this type of downturn, since it ships an average of about 35 million processors a quarter and can absorb hiccups in the channel, according to McCarron.

AMD however, with average quarterly shipments of about seven million processors a quarter, was faced with a far greater percentage of its processors stuck in the channel.

The company therefore had to make a decision to cut production in the third quarter, allowing resellers to use the chips they already have to build new systems.

Had PC manufacturers and other resellers stopped building AMD-based systems, the company would be in serious trouble, according to McCarron. But shipments of chipsets and motherboards for AMD processors were relatively strong in the third quarter, representing 16.7% of the market.

This meant that manufacturers continued to build PCs with the AMD processors they had in stock and remain committed to the AMD platform.

"The fourth-quarter shipment numbers should be a more accurate representation of PC manufacturing habits," McCarron said. "Whenever you have an inventory bubble, it creates havoc with the inventory statistics."

Nevertheless, the cut in production showed up in AMD's bottom line. The company's third-quarter revenue declined 34% from the third quarter of 2001 to $508m, resulting in a net loss of $254m.

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