Moody's downgrades AMD after Q4 warning

AMD warned last week that its fourth quarter sales would be 25 percent lower than its third quarter revenue of $1.585 billion, prompting Moody's to downgrade the credit rating of the chip maker from "B2" to "B3".

Moody's estimates AMD's revenue shortfall will likely result in an operating loss of approx. $350 million to $400 million in the fourth quarter of this year, excluding any potential restructuring charges. For the first quarter of next year, Moody's expects a similar loss.

The ratings agency lowered AMD's rating by one notch to "B3" from "B2," both of which are non-investment, or "junk," grade. Moody's said the company's outlook is "Negative."

AMD said earlier this month it expects revenue to decline about 25 percent from third-quarter levels. The company reported third-quarter sales of $1.59 billion, suggesting AMD expects about $1.19 billion for the present quarter. Analysts polled by Thomson Reuters were expecting $1.54 billion.

AMD, based in Sunnyvale, Calif., has been struggling for some time, racking up billions in losses over the last two years. And in the past few months, chip makers have seen demand for many of the devices their technology goes into, including computers and cell phones, decline steeply. The company said last month that it will lay off 500 workers, or 3 percent of its work force, in addition to the 1,600 workers it has already fired.

Moody's said declining profitability and cash flow will put increasing stress on AMD's liquidity through 2009.