ATI Technologies on Monday said that revenues for the third quarter of fiscal 2005 are expected to be approximately 5% below the low end of the revenue range provided on March 24, 2005. The company said that while its revenues improved annually, shift to lower-end product lines during the quarter and issues with yields caused revenues to be lower than expected.

ATI expects revenue to reach about $530 million for the quarter, gross margin is expected to be approximately 29%. Operating expenses, excluding the costs associated with stock-based compensation, are expected to be about $143 million, according to the company.

“Broad-based demand for our products led to unit growth of approximately 5% in our overall PC business despite the typical seasonal weakness seen in the third quarter relative to the second quarter. While we believe end-user demand remains stable, a product mix shift in the quarter towards the lower end of the desktop and notebook discrete market caused revenues to come in below expectations. Our desktop integrated graphics processor (IGP) business exceeded expectations, growing dramatically in the quarter. Revenues from our consumer business - which includes DTV and handset - were within expectations,” the company said in a statement.

The product mix shift towards the lower end of the desktop and notebook discrete market contributed to a decline in gross margin for the quarter. In addition, gross margin was impacted by ATI’s desktop IGP products, which are claimed to have margins that are well below the corporate average.

The company also said that lower than anticipated yields on certain products due to operational issues in the packaging and test area of the manufacturing process, also negatively impacted gross margin. Those issues may be associated with a recent fire at ASE, a packaging facility in Taiwan, who recently received orders to pack and test ATI’s next-generation R520 chips as well as NVIDIA’s next-generation G70 processors.

“Looking into the fourth quarter of fiscal 2005 and into fiscal 2006, we continue to see opportunities for growth. Based on our traction in the high growth markets of DTV and handset, our expanding footprint in desktop IGP, as well as continued strength in our core PC discrete market, we expect revenues for the fourth quarter of fiscal 2005 to be about $600 million,” the graphics company said in the statement.

ATI will report its fiscal 2005 third quarter financial and operating results on June 23, 2005.