ATI price-cutting tied to sharp drop in profit

The world's second biggest maker of computer graphics chipsets, ATI Technologies, stumbled badly in the quarter ending November 30.

Yesterday, the company reported that both revenues and profit for the first fiscal quarter of 2006 had suffered when compared to the same quarter a year ago.

The Ontario-based ATI reported revenues of $591 million and a profit of $7.6 million for the recently completed quarter, compared with revenues of $613.9 million and a profit of $63.7 million a year ago.

The culprit behind the dismal showing was the need to sell off older product, sometimes at no return on investment.

"Our desktop GPU business margins improved significantly in Q1, several percentage points, but we still had a negative impact due to the older products in inventory that we had to sell at a fairly low gross margin, in some cases zero gross margin," CEO David Orton said in a conference call with investors.

The chip maker is predicting sunnier financial skies for the current quarter, estimating that top-line revenue will grow between 8 and 12 percent "due to continued growth in our Radeon X1000 family and in our Radeon Xpress line of chipsets for AMD- and Intel-based platforms."

ATI provides chipsets for computers, cell phones, and high-definition TVs. In addition, a custom-designed ATI GPU is used in the Xbox 360.