Time to Reboot: AMD Is an Awful Mess

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For Advanced Micro Devices, Inc. (NASDAQ:AMD), the first quarter was a time to forget — and Wall Street would certainly like to do so as well.  So far in today’s trading, AMD stock is off by about 14%.

advanced-micro-devices-amd-stock-logo-185So here’s a look at the damage from AMD earnings report: In the quarter, revenues plunged by 26% to $1.03 billion (there was nearly a 17% drop on a quarter-over-quarter basis) and the net loss came to $180 million, or 23 cents per share. Even after excluding one-time items, AMD still posted an adjusted loss of 9 cents per share.

As for the Street, the consensus was for revenues of $1.05 billion and a loss of 7 cents per share.

But this quarter will not be the end of the woes for AMD earnings. For the second quarter, the company is forecasting 0% to -6% revenue growth, for a range of $968 million to $1 billion. Yet the analysts’ consensus was for $1.1 billion.

There are various factors for the falloff. Of course, AMD is feeling the pressure from the rapid ascent of the U.S. dollar. This has essentially made the company’s offerings too pricey.

What’s more, AMD also does not have the huge scale of rivals like Intel Corporation (NASDAQ:INTC) to help soften the blow.

But perhaps the biggest problem for Advanced Micro Devices is the continued sluggishness in the PC market. On a conference call with analysts, CEO Dr. Lisa Su talked about how “challenging” conditions are, but provided no guidance on when things will improve.

More ominously, she mentioned the phrase “long-term” various time, indicating that the PC problems may be here to stay for some time.

But there is something else that rattled AMD stock: the shutdown of the SeaMicro operation. The business, which was focused on dense server systems, was an acquisition that was struck three years ago for $334 million. At the time, Su noted:

“The combination of this innovative technology with our processor design expertise greatly enhances our ability to attack the fastest growing portion of the server market with industry-leading low-power, low-cost, high-bandwidth solutions.”

Well, maybe not. And this is unfortunate because AMD saw this business as a way to diversify away from the PC market.

Now it’s true that AMD stock is dirt-cheap. Keep in mind that it is trading at a mere 0.6 times revenues. This compares to a multiple of 2.7x for INTC, 3.6x for Qualcomm, Inc. (NASDAQ:QCOM) and 2.9x for Broadcom Corporation (NASDAQ:BRCM).

But being cheap is not enough to buy a stock. In the case of AMD, it is too focused on PCs and also does not have the huge scale to deal with the pressures from the U.S. dollar. Besides, the company has closed its custom-built server business and has scant penetration in the fast-growing smartphone space.

In other words, AMD stock really does not offer much for investors to have any level of excitement.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.


Article printed from InvestorPlace Media, https://investorplace.com/2015/04/time-to-reboot-amd-is-an-awful-mess/.

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