AMD Vows Not to Repeat Missteps

Advanced Micro Devices Inc. apologized to Wall Street for botching its handling of a high-end chip line. But the chip maker still faces skepticism about its prospects.

At a meeting with analysts, AMD executives vowed not to repeat stumbles that helped shave nearly 40% off its market value since mid-October. The company predicted it will return to profitability on an operating basis in the third quarter of next year, though a net profit will take longer because of factors that include write-offs associated with its 2006 acquisition of ATI Technologies.

AMD, based in Sunnyvale, Calif., plans to reduce capital spending by 35% to $1.1 billion in 2008 and take other moves to reduce costs. It is also stepping up efforts to sell chips for noncomputer products such as TV set-top boxes and cellphones.

With all of its strengths, the recent stock drop "just doesn't make sense," argued Hector Ruiz, AMD's chief executive. He and other executives acknowledged, however, that the company irked customers with a microprocessor called Barcelona.

The chip, AMD's first with four calculating engines, was introduced in September -- later than the company had hoped -- and operated at slower speeds than expected. Then AMD disclosed a design flaw this month that will push back big production volumes until late in the first quarter of 2008 or the second period and also affect a quad-processor PC chip called Phenom.

"We blew it, and we're very humbled by it," Mr. Ruiz said. "And we learned from it, and we're not going to do it again."

The company faces improved chips from rival Intel Corp. that top AMD's in many measures of computing performance. While stressing that they haven't given up on taking back the speed crown, AMD executives argued they can still exploit advances such as low power consumption.

In one change disclosed yesterday, AMD is adjusting a plan dubbed Fusion to combine its computing circuitry with ATI's graphics technology on a single chip. In July, AMD said the first product from that effort would use a sophisticated new microprocessor design, code-named Bulldozer.

Now AMD plans to make its first multifunction chip using modifications of an existing microprocessor, in a product called Swift that will arrive in mid-2009. In an interview, Mr. Ruiz said customers wanted AMD to reduce design risks and deliver a product sooner.

Roger Kay, an analyst with Endpoint Technologies Associates Inc., said the change raises the odds that AMD will still lag behind Intel's performance in two years. "I think it basically makes them fall behind," he said.

AMD's stock initially slid 5% following the company's comments but rebounded to close at 4 p.m. at $8.84, off 13 cents, in New York Stock Exchange composite trading. JoAnne Feeney, an analyst at FTN Midwest Securities Corp., said the initial drop may have reflected disappointment that AMD didn't disclose details about a long-discussed plan to reduce costs by relying more on other companies' chip factories. Mr. Ruiz said the company won't discuss its plans until they are finalized.

Ms. Feeney argued that AMD should be able to rebound soon, with the redesigned Barcelona chip and the ability to offer computer makers combinations of chips using ATI products. "We should be past shortcomings in the processors in about a month and a half," she said.