AMD CEO: OEM-Channel Inventory Glitch Will Hurt Sales

OEM chip

In a presentation at the Morgan Stanley Technology Conference, Ruiz said AMD won't meet its projected revenue guidance of between $1.6 billion and $1.7 billion for its fiscal 2007 first quarter. He didn't provide revised estimates on revenue or an expected loss for the quarter, which ends in late March.

The Sunnyvale, Calif., company is scheduled to report its first-quarter results in mid-April, an AMD spokesman said.

"There are definitely challenges," Ruiz said at the conference. "We're going through a quarter or two of adjustments because of the dramatic change in demand [from OEMs] and how we balance demand between OEMs and channel partners."

He added that AMD needs to "fix the challenges we created in the fourth and first quarter."

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Ruiz acknowledged that AMD continues to suffer repercussions from a bad bet made last quarter to hand off more supply to OEMs than what was ultimately needed by those partners. That decision led to a chip shortage in the channel that continues to plague AMD's bottom line.

Some partners blamed it on AMD's new partnership with Dell, which went into effect last quarter.

AMD denies that assertion, claiming the supply issue was a result of unexpected demand from all of its OEM partners. AMD also recently denied claims made by some that Dell last quarter returned a bunch of AMD motherboards said to be flawed.

Ruiz blamed AMD's first-quarter woes on its channel inventory issues and disappointing fourth-quarter results by its OEM partners. He also said the company has seen a faster-than-expected shift in its OEM business.

"At the end of the year, we were not able to serve the distribution channel. When a lot of OEMs were not able to materialize this [estimated] demand, we couldn't flip demand to the channel as quickly as we'd like," he said. "So we took a risk on how we shipped our capacity to serve our customers, and some of our customers didn't meet their aggressive growth rates. So we didn't recover as fast as we could have liked."

Ruiz said he wouldn't provide updated guidance on revenue or average selling price (ASPs) for the first quarter.

"We still have five weeks left in the quarter, and we don't want to say anything," Ruiz said. "Pricing is competitive, and the fairly dramatic shift to largely an OEM ... that growth has made it really challenging for us to make the shift. The OEM and channel mix, we didn't go as good a job as we should. "

AMD reported fourth-quarter 2006 revenue of $1.77 billion and a loss of $574 million, or $1.08 per share.

Ruiz said he is "bullish" on AMD's fiscal performance for the second half and that the company isn't revising its annual forecast because of "blips" in the first quarter.

He said he expects double-digit growth through the year and to recapture the channel market share it lost to rival Intel in the past few months.

"That issue should be alleviated this year because we have a lot more capability and can serve fast-growing OEMs and continue to serve the channel as we have before," he said.