AMD stock tumbles

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AMD warning, lackluster SAP lead tech stocks lower

January 11, 2005 11:48:39 (ET)


By Daniel Sorid and Eric Auchard

SAN FRANCISCO, Jan 11 (Reuters) - A downgraded quarterly outlook from Advanced Micro Devices Inc. (AMD,Trade) sent the stock tumbling 21 percent on Tuesday as a bruising battle with rival Intel Corp. (INTC,Trade) cast a shadow over semiconductor stocks ahead of Intel's bellwether earnings report later on Tuesday.

But while competition between the chip makers highlighted the lack of pricing power many technology companies have amid lackluster overall demand, several sectors of the industry stand to benefit from falling component prices.

Shares of leading chip makers sagged, with the Philadelphia Semiconductor Index of 16 major stocks down more than 2 percent. Broader indexes, including the S&P 500 Index and the Dow Jones industrials, fell to one-month lows.

In the software sector, SAP ((SAPG.DE)), the world's biggest maker of business planning software, said it would meet quarterly sales forecasts but disappointed a market that has grown used to SAP beating expectations, sending its shares down 3 percent.

AMD pointed to a "competitive and challenging" environment for flash memory, a business that has AMD and Intel jockeying for leadership. AMD said sales in that business would fall, reversing an earlier forecast for flat-to-higher sales.

"We suspect that difficult pricing from Intel is the primary culprit," Piper Jaffray analyst Richard Shannon said of AMD's shortfall in its flash revenue business, a market segment where Intel has been making renewed strides.

Analysts expect Intel, the world's largest chip maker, to report an 11 percent increase in sales during the fourth quarter over the third, due to strong demand for microchips used in notebook and server computers.

Flash memory problems are nothing new for either Intel or AMD. Both companies blamed the business for spoiling their third-quarter financial forecasts.

NOT ALL GLOOM

But the recent news was not all gloomy, with the storage sector, in particular, standing out.

For while AMD and Intel may be bloodying one another, cheap component prices can spur demand for lower-priced goods.

The long suffering hard-disk industry heard some good news from storage network equipment maker QLogic (QLGC,Trade), which said results would be well above forecasts, sending its stock up 6.2 percent.

Similarly, Hutchinson Technology (HTCH,Trade), a supplier of disk drive components with an 80 percent share of the market, raised its outlook, sending its shares up 2.2 percent to $33.41.

"We believe it suggests a healthy demand trend for PC makers (such as Dell and HP) as well as enterprise storage vendors such as Network Appliance and EMC)," Lehman Brothers analyst Harry Blount said in a note to investors.

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