Advanced Micro Devices Inc. (AMD) shares plunged 14 percent after the second-largest maker of processors for personal computers cut its forecasts for third-quarter sales and profitability, citing manufacturing disruption.
Sales in the period ending Oct. 1 will rise 4 percent to 6 percent from the previous quarter, the Sunnyvale, California- based company said in a statement late yesterday. That compares with an earlier prediction for growth of about 10 percent.
Globalfoundries Inc., a spinoff of AMD’s manufacturing operations that now supplies the company with chips, is having difficulties with production at its plant in Dresden, Germany. That has caused a shortfall of AMD’s latest processors, the company said. That's a setback as AMD rolls out its new Llano chip for laptops, which has drawn steady demand, said Hans Mosesmann, an analyst at Raymond James & Associates.
“They’re not cutting because of demand, but are cutting because of execution problems,” said Mosesmann, who is based in St. Petersburg, Florida. “The big question is how far along are they at fixing this problem.”
AMD dropped 84 cents to $5.31 at 4 p.m. on the New York Stock Exchange. The shares have declined 35 percent this year.
Gross margin, or the percentage of sales remaining after deducting the costs of production, will be 44 percent to 45 percent for the quarter, AMD said. The company had previously projected gross margin of 47 percent.
Globalfoundries is “throwing substantial resources at improving yields,” said Drew Prairie, an AMD spokesman. “We’re seeing progress.”
In the second quarter, AMD had sales of $1.57 billion. A revenue increase of 4 percent to 6 percent from that period would equal sales of about $1.64 billion to $1.67 billion. Analysts on average estimated AMD’s third-quarter sales would rise to $1.72 billion, according to Bloomberg data. Revenue in the year-earlier third quarter was $1.62 billion.
Other chipmakers have slashed forecasts in recent weeks, citing weak demand. Unlike those companies, AMD can’t supply enough of the new Llano chips, according to Raymond James analyst Mosesmann.
Earlier this week, Freescale Semiconductor Holdings said its third-quarter sales won’t meet earlier projections. Freescale followed rivals Texas Instruments Inc. and Intersil Corp. in saying that orders for their products are slowing.
In addition to being unable to supply enough Llano chips -- a combination processor and graphics chip for PCs -- AMD said it wasn’t able to ship its new server chip, called Interlagos, as early as planned.
In April, AMD said it changed its supply agreement with Globalfoundries to protect it against production delays. Under the revised agreement, AMD only pays for functioning chips delivered, rather than total production.