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AMD follows broad tech decline with poor sales forecast, chip woes

San Francisco

ADVANCED Micro Devices Inc (AMD) added its name to a growing list of semiconductor companies that were battered with huge share declines after reporting disappointing results and forecasts. The stock slumped in extended trading, wiping out more than a fifth of the chipmaker's market value.

AMD's results came on a day when investors were already pressing the sell button on a sector that many now fear is signalling a wider technology industry downturn. The Philadelphia Stock Exchange Semiconductor Index dropped 6.6 per cent Wednesday after Texas Instruments Inc, which has the largest number of customers and the broadest product range in the chip industry, warned that demand is slowing across many of its markets.

Before Wednesday's results, AMD had put together eight quarters of double-digit percentage sales growth as it rebounded from the lowest ebb in its almost 50-year history. Company management pinned its shortfall on the graphics-chip unit and said the business will rebound this quarter. The executives maintained AMD is making good on its promised gains against larger rival Intel Corp.

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The biggest reason for the company's fall on Wednesday was the unrealistic expectations that made it an outperformer on the S&P 500 Index this year, according to Ruben Roy, an analyst at MKM Partners. While bullish analysts focused on signs of progress in the company's microprocessors and manufacturing problems at Intel, AMD's other units - graphics and custom chips for game consoles - have began to struggle, he said.

"There was a lot of hope built into that share price," Mr Roy said. "They're doing OK with execution in computing, but there are other parts of the business." The stock had more than doubled this year, before falling in regular trading Wednesday as part of the broader market rout - and dropping as much as 25 per cent after the earnings were released.

Fourth-quarter revenue will be about US$1.45 billion, plus or minus US$50 million, the Santa Clara, California-based company said in a statement. That compares with analysts' average estimate of US$1.6 billion, according to data compiled by Bloomberg.

Third-quarter net income was US$102 million, or nine cents a share, compared with US$61 million, or six cents a share, a year earlier. Analysts had forecast profit of US$106 million. Revenue rose 4.4 per cent to US$1.65 billion, compared with analysts' average projection of US$1.7 billion.

AMD is the second-largest maker of graphics processors used as add-in cards in gaming personal computers, a market led by Nvidia Corp. The company is also trying to make a comeback in server processors against Intel, which has about 99 per cent of the market.

The computing and graphics business had sales of US$938 million in the third quarter, up 12 per cent from a year earlier, but a drop of 14 per cent from the prior period. Improving demand from Ryzen computer processors helped cushion the decline in graphics chip revenue, the company said. Resellers of its graphics chips cut orders to reduce their stockpiles of unsold parts, AMD added.

That overhang in graphics may continue for two quarters, chief executive officer Lisa Su told analysts in a conference call. AMD believes it's winning market share from Intel in desktop and laptop computers and its server business - which was almost completely pushed out of the market by the world's second-largest chipmaker - is on course to grab a share of mid-single digits by the end of this year, she said.

More broadly, AMD isn't seeing any signs that a trade dispute between China and the US is hurting demand, she added.

One company that bucked the industry trend is Xilinx Inc. The maker of programmable chips Wednesday gave a projection for current quarter sales that topped analysts' estimates and raised its annual revenue forecast, sending shares up as much as 13 per cent in extended trading. BLOOMBERG