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ATI Q3 loss wider than expected

Six-seven cents a share forecast turns into 10 cents reality. Oh dear...

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ATI's previous predictions of revenue shortfalls and losses for its third quarter proved accurate today when the 3D graphics market leader posted "unacceptable" financial results for the three months to 31 May.

In the event, revenues were not down significantly. The quarter's sales of $288.2 million represents a fall of just 4.6 per cent from the $302 million ATI recorded for the same period last year.

ATI's loss, however, hit $23.1 million, well down on last year's $35.9 million profit. That amounts to a loss of ten cents a share - rather higher than the 6-7 cents a share the company had predicted.

And if you factor in the cost of ATI's acquisition of graphics chip developer ArtX ($20.3 million) and other charges and costs, the company's loss widens to $128.8 million, or 58 cents a share. For the same period last year, the company recorded income of $18.6 million after charges.

ATI blames its shortfalls on the continuing component shortage, which is hitting its OEM customers - ATI's core business - hard, plus competitors' "aggressive" price-cutting actions. ATI also found itself forking out huge sums to promote its older product lines, and to make a "special provision for excess and slow-moving inventory". Together they knocked $88 million off ATI's bottom line.

ATI CEO KY Ho dubbed the results "unacceptable" and pledged to return the company to profitability with a mixture of cost-cutting measures and sales of the upcoming 256-bit Radeon chip, which will enter volume production next month, the company said.

Radeon is key. Ho said the company was "pleased with the initial performance and acceptance of our Radeon chip by OEMs", while ATI's president and COO, Dave Orton, said: "We remain strong in OEM and retail sales, number one in mobile graphics and anticipate significant new business with our new high-end Radeon graphics processor, integrated graphics and set-top products."

Anticipating is one thing - getting it is another. Many of ATI's OEM customers are turning to other suppliers, most notably Nvidia, and that's going to mean ATI will have to work hard to win them back. In its favour is the fact that 3D graphics acceleration is now pretty much de rigueur in the mainstream PC markets, which should provide ATI with a much wider market to sell into. ®

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