July 10 (Bloomberg) -- Advanced Micro Devices Inc., the second-biggest maker of processors for personal computers, fell the most in almost 10 months after reporting an unexpected drop in second-quarter sales, citing weakness in China and Europe.
Sales fell 11 percent in the period that ended in June from the prior quarter, indicating revenue of $1.41 billion, compared with an average analyst estimate of $1.63 billion, according to a Bloomberg survey. AMD had previously forecast sales would rise 3 percent, plus or minus 3 percent.
Demand for AMD’s products is being hurt by slower growth in China, the second-largest economy, and a worsening economic climate in Europe. The chipmaker is also suffering as consumers shun PCs in favor of tablets, which rely on semiconductors made by other companies. AMD’s sales drop may be a harbinger of disappointing results at peers, such as Intel Corp., said Stacy Rasgon, an analyst at Sanford C. Bernstein & Co.
“I had been hoping that the new product launches would help them overcome the macro environment, but it doesn’t look like that happened,” said Rasgon, who is based in New York. “This is not good. I wonder what this means for Intel.”
The shares dropped 11 percent to $4.99 at the close in New York, the biggest decline since Sept. 29. AMD has fallen 7.6 percent so far this year.
AMD, whose sales beat analysts’ predictions in the first quarter, projected higher sales in April, citing growing demand for personal computers. This quarter, gross margin, or the percentage of sales remaining after deducting the cost of production, will meet its previous predictions, AMD said.
Chief Financial Officer Thomas Seifert said in April that gross margin would be “flat to slightly up in the second quarter,” from the first. Gross margin, not including certain costs, was 46 percent in the first quarter.
AMD may have lost market share to Intel by refusing to cut prices in order to maintain profitability, according to a research note by Doug Freedman, and analyst at RBC Capital Markets in San Francisco.
The drop in revenue may signal that AMD is grappling with a backlog of unsold chips, said Patrick Wang, a New York-based analyst for Evercore Partners Inc.
“It’s a huge miss for any company at any scale,” said Wang, who is based in New York. “When you miss by this magnitude you end up with a ton of inventory in the pipeline.”
The company plans to report second-quarter results on July 19.
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