As reported, microprocessor supplier AMD on Wednesday (April 13) posted strong results in the first quarter, but the company expects second quarter sales to be flat to slightly down seasonally from the first quarter of 2006.

There were other issues as well. “There is bound to be some confusion over AMD's depreciation guidance,” observed Doug Freedman, an analyst with American Technology Research Inc.

“Previously the company had guided for depreciation to be $825 million for the year and that this number would be somewhat front-end loaded. This caused analysts' estimates to be in the range of $200-225 million for depreciation in Q1, or approximately $38.5 million higher at the mid-point than what AMD reported. This delta is the equivalent of 8 cents in EPS,” he said in a report.

And what's the meaning behind this? “We believe that this means AMD ramped Fab 36 slower than expected and that this will be viewed in one of two ways. Either the ramp has gone slowly as a result of poor execution ( this would be the bear point of view), or management was being conservative in previous guidance by giving a large depreciation number, and after the fab began producing mature yields at a quick pace, demand did not warrant further equipment start-up until later in the year,” he said.

“The later seems more plausible as the full-year depreciation guidance remained unchanged, and further equipment purchases will be made in the back half of the year,” he added.

During a conference call on Wednesday, AMD claimed that production at its 90-nanometer Fab 36 would continue to ramp up.

By: DocMemory
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