Net income and gross margin growth driven by increased AMD64 processor demand
Sunnyvale, CA -- October 7, 2004 --AMD (NYSE: AMD) today reported sales of $1.239 billion and net income of $44 million for the quarter ended September 26, 2004. Net income amounted to $0.12 per diluted share.
Third quarter sales increased by 30 percent compared to the same period in 2003 and decreased by two percent from the second quarter of 2004. In the third quarter of 2003, AMD reported sales of $954 million and a net loss of $31 million, or $0.09 per share. In the second quarter of 2004, AMD reported sales of $1.262 billion and net income of $32 million, or $0.09 per diluted share.
“Our third quarter net income improvement was largely driven by a 21 percent sequential increase in Computation Products Group (CPG) sales and improved gross margin in the Memory Group,” said Robert J. Rivet, AMD’s chief financial officer. “AMD64 processor sales represented over one-third of our total CPG sales. Sales growth was driven by both higher average selling price (ASP) and increased unit volumes.
“The successful transition to 110nm technology and excellent cost management allowed the Memory Group to remain profitable despite weaker than expected sales into the wireless handset market.”
Third quarter operating income of $68 million improved from an operating loss of $30 million in the third quarter of 2003 and declined slightly from $72 million in the prior quarter. Third quarter gross margin increased to 40 percent from 38 percent in the second quarter of 2004. The improvement was largely due to strong processor sales growth and excellent execution of process technology transitions in both businesses.
Computation Products Group sales were $673 million in the third quarter of 2004. This is an increase of 34 percent from $503 million in the third quarter of 2003 and is a 21 percent increase from $554 million in the second quarter of 2004. CPG generated operating income of $89 million in the third quarter, up from $58 million in the second quarter of 2004.
CPG’s improved profitability and higher ASP were driven primarily by a significant increase in processor sales across all markets, with AMD64 processor shipments nearly doubling over the previous quarter. The company also successfully launched the AMD Sempron™ processor family in the third quarter. This helped drive significant CPG sales growth in China. In addition, AMD Athlon™ 64 processors based on 90nm technology began shipping for revenue in the quarter.
Memory Group sales were $538 million in the third quarter, an increase of 27 percent from $424 million in the third quarter of 2003 and a decline of 20 percent from $673 million in the second quarter of 2004. The Memory Group generated operating income of $15 million, down from $45 million in the prior quarter. Third quarter profitability was largely driven by the successful transition to 110nm technology, the smallest node in production by any NOR Flash memory company, as well as increased shipments of Flash memory products based on MirrorBit™ technology.
Flash memory sales into the embedded market remained solid. Flash memory sales into the wireless handset market declined significantly, resulting in a lower Flash memory ASP.
Additional Highlights Of The Quarter
Twenty-five percent of the Fortune Global 100 companies now use AMD Opteron™ processor-based systems to run critical enterprise applications. These organizations include industry leaders in banking, insurance, pharmaceuticals, manufacturing, energy and telecommunications.
New AMD Opteron processor-based server customers include AOL, Merrill Lynch, Bell Helicopter, Sabre Holdings, BNP Paribas, E! Networks, Fox Sports, and Agere Systems.
AMD Opteron processor-based servers and workstations are providing the digital backbone for Star Wars Episode III: Revenge of the Sith. The AMD64 digital processing pipeline at JAK Films includes pre-visualization and pre-postproduction, which involves 3-D match moving, 3-D modeling, lighting, shading, texturing, compositing and rendering techniques.
AMD demonstrated the industry’s first x86 dual-core processor on 90nm process technology. HP, IBM and Sun Microsystems, among others, announced support for AMD’s dual-core technology.
As an official sponsor and technology partner to Scuderia Ferrari and the USPS Pro Cycling Team, AMD helped make history as Ferrari secured an unprecedented 14th Formula One Constructors’ title and Michael Schumacher secured a record 7th Drivers’ World Championship, while Lance Armstrong became the world’s first six-time Tour de France winner.
AMD launched the new AMD Sempron processor family, which redefines everyday computing for value-conscious buyers of desktop and notebook PCs. Acer, HP and Lenovo are among the initial leading OEMs to offer AMD Sempron processor-based systems.
VMware ESX Server, a leading virtual infrastructure software application that enables enterprises to partition and manage systems in mission-critical environments, was qualified on AMD Opteron processor-based systems from HP and IBM.
With the release of Microsoft® Windows® XP Service Pack 2, Enhanced Virus Protection can be enabled on all AMD Athlon 64 processors, the first PC processors to offer an enhanced level of security against certain viruses.
AMD introduced the Mobile AMD Athlon 64 processor 3000+ for thin-and-light notebooks, and the highest performing 32-bit/64-bit processors available for mobile PCs, the AMD Athlon 64 processor 3700+, for desktop-replacement notebooks.
Spansion completed its transition to 110nm technology at Fab 25 in Austin, Texas.
AMD established a Greater China headquarters in Beijing.
AMD’s outlook statements are based on current expectations. The following statements are forward looking, and actual results could differ materially depending on market conditions. In the fourth quarter of 2004, AMD expects overall sales to increase, driven by processor sales that exceed seasonal trends, and flat-to-up Flash memory sales.
AMD will hold a conference call for the financial community at 2:30 p.m. PT today to discuss third-quarter financial results. AMD will provide a real-time audio broadcast of the teleconference on the Investor Relations page of its Web site at www.amd.com or www.streetevents.com. The webcast will be available for 10 days after the conference call.
This release contains forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that forward-looking statements in this release involve risks and uncertainties that could cause actual results to differ materially from current expectations. Risks include the possibility that global business and economic conditions will worsen resulting in lower than currently expected sales in the fourth quarter of 2004; that Intel Corporation’s pricing, marketing programs, product bundling, new product introductions or other activities targeting the company’s processor business will prevent attainment of the company’s current processor sales plans; that demand for personal computers and, in turn, demand for the company’s processors will be lower than currently expected; that adoption of AMD64 products by OEMs will not occur as expected; that demand for the company’s Flash memory products will be lower than currently expected, particularly in the high-end mobile telephone sector and that the company will not be able to increase Flash memory market share; that Intel Corporation will negatively affect NOR Flash memory prices; that customer acceptance of MirrorBit technology will not continue to increase; that the company will not be able to meet demand for its products; that the company may not achieve its current product and technology introduction schedules; that the company’s transition to 90nm manufacturing processes for processors and 110nm manufacturing processes for Flash memory will not occur in the expected timeframe and that the company will not recognize the expected benefits from the technology transition; that the company will not be able to raise sufficient capital to enable it to establish leading-edge capacity to maintain its market leadership positions; and that solutions providers will not timely provide the infrastructure, including operating systems and applications, to support the company’s AMD64 technology. We urge investors to review in detail the risks and uncertainties in the company’s Securities and Exchange Commission filings, including but not limited to the Annual Report on Form 10-K for the year ended December 28, 2003, and the Quarterly Report on Form 10-Q for the quarter ended June 27, 2004.
About AMD AMD (NYSE:AMD) designs and produces innovative microprocessors, Flash memory devices and low-power processor solutions for the computer, communications and consumer electronics industries. AMD is dedicated to delivering standards-based, customer-focused solutions for technology users, ranging from enterprises and governments to individual consumers. For more information visit www.amd.com.
AMD, the AMD Arrow logo, AMD Athlon, AMD Opteron, AMD Sempron, and combinations thereof, are trademarks of Advanced Micro Devices, Inc. Spansion and MirrorBit are trademarks of Spansion LLC. Microsoft and Windows are registered trademarks of Microsoft Corporation in the U.S. and/or other jurisdictions. Other names used are for identification purposes only and may be trademarks of their respective owners.