ATI income down, revenues up

Got to watch those exceptional items, guys

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ATI lost $8.3 million in its last quarter, the second of its 2003 fiscal year, on revenues up to $318.5 million from the $266 million it recorded for the same period last year.

Operationally, ATI did rather better than that loss suggests: before exceptional items are taken into consideration, it made a profit of $9.7 million ($0.04 a share). This time last year it saw an operational income of $17.6 million ($0.07 a share) eroded to a loss of $3 million ($0.01 a share) thanks to other one-off charges. This quarter's charges included a class action lawsuit settlement, costs relating to Canadian SEC investigation of the company, and restructuring charges arising from the closure of its European manufacturing operation.

Gross margin for the quarter was 28.9 per cent, up from Q1's 27.3 per cent, said ATI. Operating expenses increased $0.7 million to $80.3 million compared to the first quarter.

During Q1 2003, ATI posted a net income of $5 million ($7 million before charges) on revenue of $322 million. The represents a quarter-on-quarter dip of just 1.1 per cent - not bad given the usual post-Christmas seasonal decline.

Looking ahead, ATI said it expects sales to shrink a little further during the current quarter, to around $300 million. Gross margin, as a percentage of revenues, for the third quarter is expected to improve slightly. Operating expenses will also rise, it admitted.

However, it expects net income to rise through the current, third quarter and the fourth as its set-top box products begin to move into profitability. In the long run, this business is likely to contribute a lot more to ATI's bottom line than its high-end graphics chips, if it gets the price:volume ratio right. It's leadership of the notebook graphics market will help it going forward too, particularly as that's a growth sector, but competition with Nvidia will be intense.

Once X factor is its recently awarded Pentium M bus licence, which could boost ATI's standing in the mobile space. ®

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