Advanced Micro Devices' chairman, stung by a 92 percent plunge in profits from a year ago, slammed rival Intel for recent price cuts, accusing it of "monopolistic practices" that have stymied its efforts in the commercial market.

Jerry Sanders' words came as AMD, maker of the Athlon and Duron processors, yesterday reported it earned US$17.4 million, or 5 cents a share, for the quarter ended July 1. The results, largely in line with Wall Street expectations, marked a dramatic drop from the $207.1 million, or 60 cents a share, AMD earned in the same period last year.

While overall sales slipped 16 percent, to $985 million from $1.17 billion, AMD still shipped a record number of PC processors -- about 7.7 million units. But the high volume was offset by price cuts the company felt compelled to make to match similar moves by Intel.

Underscoring its unusually aggressive cuts this year, Intel in April slashed the price on its 1.5GHz Pentium 4 nearly 60 percent. Intel also introduced a faster 1.7GHz Pentium 4 late that month at $352 in 1,000-unit shipments, well below the $700 to $1,000 price range its highest speed chips were initially offered for last year.

While Intel posts its volume pricing on its Web site, AMD doesn't regularly release official price lists, but the company's executives admitted that they've acted to match Intel's unexpectedly steep cost-cutting moves.

"Frankly, we were surprised by the aggressiveness and number of price changes Intel implemented last quarter," said Sanders. "There's no question it put some pricing pressures on us."

Speaking to market analysts during a conference call yesterday, the founder of the company vowed AMD would remain competitive on pricing and will fight to retain and grow market share against its much larger rival.

"We're not going to be pushed out of the ring by a sumo wrestler," Sanders said.

AMD's share of the PC processor market edged up 1 percentage point from the previous quarter to 22.2 percent, with Intel falling slightly more than 1 percentage point to 76.2 percent, according to market research firm Mercury Research, of Scottsdale, Ariz.

Dissing the Pentium 4
While a sluggish US economy and weakening PC demand ignited a price war among computer makers this year, Sanders claimed Intel cut costs for an entirely different reason.

"I think the recent aggressive pricing is because the Pentium 4 is a dud," he said. "I think the P4 is a lousy product and they have to price it much lower than any new product they've introduced before because it has no advantage to the user."

Matching Intel's lower prices severely undermined AMD's gross profit margins, or earnings from each chip sold. During the quarter, AMD's profit margin fell to about 35 percent, a dramatic decline from 48 percent a year ago.

"That's pretty ugly," Sanders admitted.

While AMD has been able to erode Intel's share of the consumer PC market -- which company executives hailed yesterday by touting that they would garner of 50 percent share of the U.S. notebook market by year's end -- the chip maker has yet to secure many design wins in the commercial PC market.

Intel chips are featured in more than 95 percent of commercial PCs produced by US computer makers.

Asked what barriers AMD faced in gaining access to the enterprise market, Sanders unleashed his harshest criticism of his longtime rival.

"The barriers are called Intel monopolistic practices. Packaging deals, buy-in deals, advertising cooperative deals, the Intel Inside program -- that's the only barrier," Sanders said. "Intel has just a lot of money to throw at any place where our products are getting close to a win."

Aside from decreasing profit margins on processors, AMD's bottom line was hurt by slumping sales of flash memory, which accounts for a little more than 30 percent of the chip maker's revenue.

Demand for flash memory, a key component used in mobile phones and portable digital devices like MP3 music players, has fallen well below projections since the beginning of the year.

Sales of flash memory declined 23 percent from the previous quarter, AMD reported, adding that the company expects sales to slip even further in the coming quarter.

"The softest market out there is the flash market," Sanders said. "We got blindsided there last quarter and it just didn't recover at all, and we're just assuming it isn't going to recover this quarter."

For the third quarter, AMD executives projected processor sales to be flat, but warned that flash memory sales could decline another 10 to 15 percent, which could result in an operating loss for the three-month period.

But AMD expects a return to "solid profitability" in the fourth quarter, Sanders said, fueled by an improving economy combined with stronger holiday season sales.

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