Intel losing market share to AMD

INTEL’S sales forecast disappointed investors and signalled the world’s biggest chip-maker may be losing market share to Advanced Micro Devices.

Revenue will rise from $10.4 billion (€8.8bn) to $10.6bn (€9bn) this quarter, compared with an October 18 forecast of as much as $10.8bn (€9.1bn), Santa Clara, California-based Intel said yesterday.

Chief financial officer Andy Bryant said the companies are engaged in ‘hand-to-hand combat’ and Advanced Micro will take market share.

The comments signal that Advanced Micro, which has lagged behind Intel with no more than 16% share in the past three years, is finding success with its newest chips, Opteron and Turion.

The gains forced Intel to cut prices, weighing on sales, and to speed up the introduction of new products for servers, which run websites and corporate networks. Intel also failed to keep up with demand, Bryant said.

Krishna Shankar, an analyst at JMP Securities in San Francisco said: “Suddenly AMD is getting more competitive.”

Intel shares dropped 78 cents to $24.92 (€21.08) in extended trading after the report. Thirty-three analysts suggest buying the stock, 15 recommend holding it and two say investors should sell.

Advanced Micro shares fell six cents to $25.59 (€21.65) in extended trading.

Sanford C Bernstein & Co’s Adam Parker, the top-ranked chip analyst by Institutional Investor, had expected Intel to post sales of at least $10.6bn.

Advanced Micro, the number two maker of computer processors said in November that shipments would grow 20% next year beating a 10% gain by the market.

Phil Hughes, a spokesman for Sunnyvale, California-based Advanced Micro declined to comment.

Chief executive Hector Ruiz said last month he expected Advanced Micro’s market share to rise to about 20% next year from 12.7% in the third quarter, citing figures from Mercury Research.

The company won orders from server makers including California-based Hewlett-Packard Co and New York-based International Business Machines Corp with chips that offered new features ahead of Intel.

Intel’s market dominance isn’t likely to be worn away any time soon and any gains by Advanced Micro may be temporary.

Intel said on December 1 it will spend $3.5bn on a single plant in Israel and is working on new chips for release in 2006 that will compete with Advanced Micro. Intel’s ability to ramp up production may help it retain its lead.

“Frankly, AMD does not have the capacity, or the global presence, to seriously hurt Intel,” Shankar said.

Constrained’ Investors had expected Intel to forecast higher sales after positive remarks from Texas Instruments Inc and Qualcomm Inc this week.

“People were starting to expect an across-the-board improvement,” said Fred Weiss, an analyst at Stein Roe Investment Counsel in Boston. His company owns Intel shares and manages $15 billion.

Bryant said Intel couldn’t keep up with demand, causing the company to reduce the top of its forecast.

Profit margins will be about 63%, Intel said in the statement.