AMD warns -- down 7% in pre-market, downgraded by several firms

Advanced Micro Devices Inc. (NYSE:AMD) warned last night that fourth-quarter operating profit would be "substantially lower" because of declining selling prices for its computer chips.

AMD acquired ATI Technologies Inc. and will have charges related to this acquisition. However, AMD still says that operating income that exclude these charges will be "positive but substantially lower" than the previous quarter.

The reason? AMD says that despite selling more units, prices on microprcessors were significantly lower and offset the increase in unit sales. AMD originally lowered prices to capture market share from its main competitor and largest player, Intel Corp. (NASDAQ:INTC). Intel responded in kind.

AMD will be reporting financial results on Jan 23. Analysts have been expecting earnings of 22 cents per share on $1.85 billion in sales. Now, AMD says that revenue, excluding ATI, will be $1.33 billion, a 3% growth.

The once darling AMD, whose products were viewed as superior, dropped 6% in Frankfurt. AMD is now down nearly 7.5% in pre-market trading. AMD was also downgraded to Hold from buy at Citigroup, among other downgrades.

While Intel addressed concerns over operations and margins lately, taking measures such as a massive restructuring effort and improving products, it seems that AMD once again has its work cut out for it.