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AMD 2Q Net Down 39% On Lower Demand for Desktop Chips

By Kristin Jones Advanced Micro Devices Inc.'s (AMD) second-quarter profit fell 39% as the chip maker saw lower demand for its desktop processors in China and Europe. AMD warned earlier this month that the latest quarter's revenue would be dramatically lower than the company previously predicted, as smaller-than-expected sales hurt its original-manufacturer business. Overall economic weakness and softer consumer spending also contributed to the quarter's results, Chief Executive Rory Read said. He added that he expected headwinds to continue in the third quarter. The company said it expects third-quarter revenue to range from a decrease of 4% to an increase of 2% from the second quarter, amounting to a range of $1.36 billion to $1.44 billion. Analysts polled by Thomson Reuters recently targeted $1.5 billion. AMD competes against Intel Corp. (INTC) to supply chips for PCs, and against Nvidia Corp. (NVDA) in graphic processors. Demand for its processors has come under pressure amid a shaky global economy and a shift in consumer taste, as smartphones and tablets are increasingly tasked with the jobs that PCs once did. Ahead of Thursday's earnings report, some analysts said the latest-quarter's weakness may also indicate that the company is struggling to compete for market share against deeper-pocketed rivals. In two previous quarters, the company faced wavering revenue and heavy charges, after it spun off its manufacturing operations in an effort to address chip shortages. AMD is looking to strengthen its cloud computing capabilities, and completed its $334 million purchase of server technology company SeaMicro earlier this year. AMD reported a profit of $37 million, or 5 cents a share, down from a year-earlier profit of $61 million, or 8 cents a share. Excluding legal settlement charges and other items, the company reported income of 6 cents a share, down from 9 cents a year ago. Analysts polled by Thomson Reuters most recently forecast earnings of 7 cents a share. Revenue declined 10% to $1.41 billion, in line with the company's prediction earlier this month. Gross margin, a closely watched figure in the chip-making industry, narrowed to 45.2% from 45.7%. Rival Intel reported earlier this week that its second-quarter profit fell slightly on higher expenses, narrowly beating consensus estimates. Intel said it expects less growth this year than it previously predicted, because of slowing demand for personal computers abroad. AMD shares sank 2.9% to $4.72 in after-hours trading. Through Thursday's close, the stock was down 10% so far this year. Write to Kristin Jones at Subscribe to WSJ:

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