AMD expects strong profit growth

SUNNYVALE, California - Advanced Micro Devices Inc. said it expects earnings to improve significantly next year as it grabs market share from giant rival Intel Corp.

The company expects its chips for server business computers to drive sales, but also sees consumer devices rising in importance, a trend noted in the industry as it widens its traditional focus on computers.

Chief Financial Officer Bob Rivet told AMD's financial analysts' meeting that the company's shipments of microprocessors in 2006 would increase at double the projected industry growth rate of 10 per cent, led by server sales.

"We expect our operating profit and EPS (earnings per share) to improve significantly from where we've been," Rivet told analysts at the company's headquarters.

AMD posted a profit of 18 cents per share in its third quarter and is expected to earn 23 cents a share in the fourth quarter, according to Reuters Estimates.

Shares of AMD rose 2 per cent to close at US$25.50 ($37.72) on the New York Stock Exchange.

AMD, which only entered the server market in a big way when it launched its Opteron chip in April 2003, said it had nearly 13 per cent of the server market at the end of September.

"A lot of momentum we are seeing is simply because we are offering choice," AMD sales chief Henri Richard told reporters in a dig at Intel, which AMD has sued for alleged anti-trust violations.

AMD expected to ship 40 million chips in 2005, and forecast that would rise by 8 million to 10 million units next year.

Rivet also projected gross margins next year of 51 per cent to 57 per cent, adding that on a sustained basis, he believed the company can achieve an operating profit margin of 18 per cent to 24 per cent.

The projections exclude AMD's Spansion memory chip business, which the Sunnyvale, California-based company plans to spin off.

Gross margins in the first half of next year would be lower than in the second because of higher capital spending as AMD started up its new factory in Dresden, Germany.

Microprocessor unit President Dirk Meyer also said that products for small businesses and consumers were a key growth area for microprocessors.

"We see far and away the biggest incremental growth as being in the consumer market," Meyer said.

- REUTERS