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Prices, Production Cause AMD Losses

Just weeks after rolling out the fastest notebook processor - the 380MHz K6-2 - and a new 475MHz desktop chip, AMD reports that manufacturing problems and a lower average price for its processors will result in a higher-than-expected loss for the quarter, which will be reported this week.

The news follows two strong months of sales in which PCs using AMD chips outsold those powered by Intel processors, according to research from PC Data, which said that AMD-paced systems represented more than 50% of all consumer PC sales.

In its third warning in as many months, AMD said it shipped 4.3 million processors during the first quarter, well below the 5.5 million-unit target figure and the 5 million sold in the fourth quarter of 1998.

Early in the quarter AMD was plagued by manufacturing problems that affected production of its fastest K6-2 chips. Since then, severe price competition in chips driving the sub-$1,000 PC market has led to a significant erosion in the average selling price of K6 chips, which dropped to $78 - lower than the $89 ASP of late 1998 and well below the $100 ASP an AMD spokesman said it required to be profitable.

AMD, which will report first-quarter earnings after the market closes on April 14, declined to specify the size of the expected loss, describing it only as "significant." The company is looking to improved production of its new K6II and the impending launch of its next-generation K7 processors to boost average chip prices going forward.

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