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ATI predicts sales slide as margins collapse

'Disappointing and challenging'

ATI has slashed its Q4 revenue expectations, reversing an anticipated sequential gain into a decline, after its gross margin collapsed during the quarter.

When it posted its Q3 FY2005 results in June, ATI forecast Q4 revenues of $550-580m. Yesterday, the graphics chip maker revised that figure to $465-480m, down 15.5-17.2 per cent.

If ATI comes in within its anticipated range, Q4 sales will be 9.4-12.3 per cent down on the previous quarter, and 16.1-18.7 per cent down on Q4 FY2004.

ATI said it expects gross margins to fall to a single-digit figure. During Q3, margins reached 29.1 per cent. The collapse is due to "an inventory writedown that is expected to be approximately $60-70m", ATI said.

ATI said its desktop product line missed expectations both in units and average selling prices for the retail and add-in-board channels. All other product lines are expected to be in line with company expectations for both revenue and gross margin, it claimed.

The big issue for ATI is buyer expectation: punters had anticipated the arrival of both the next-generation R520 chip and its SLi-like CrossFire technology, neither of which have yet materialised.

"Operating expenses, excluding the costs associated with stock-based compensation, are expected to be in the range of $143-148m, which is in line with guidance," the company added.

Two weeks ago a number of law firms announced class action lawsuits against ATI filed with the US District Court of Eastern Pennsylvania on behalf of shareholders who held stock between 7 October 2004 and 23 June 2005. The lawsuits allege ATI and its officers provided false statements which inflated the market price of the company’s stock - classic 'safe harbour' stuff, we'd say. ®

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