It’s painful for both the speaker and the audience to belabor an obvious point, but for Advanced Micro Devices, Inc. (AMD), their management team’s efforts are only delaying an inevitable demise.
AMD’s most recent earnings report — booking an expected loss of 17 cents per share in the second quarter of fiscal year 2015 — removed all doubt regarding the sad state of affairs plaguing the personal computer industry.
The rapid loss of value in the markets for AMD stock — down a harrowing 33% year-to-date — is business as usual for the PC sector. Most of AMD’s competitors, including NVIDIA (NVDA) and Intel (INTC), are in the red this year, and blue-chip stalwart IBM (IBM) may soon be joining the dubious list after posting a disappointing earnings performance, sinking IBM stock and the Dow Jones Industrial Average on Tuesday.
Ever plucky, AMD has allegedly been considering either splitting its business in two, or spinning off a separate company, according to a June Reuters article.
In addition, recent rumors purport that the embattled chipmaker is in talks with Nintendo (NTDOY) regarding the processor development of Nintendo’s upcoming gaming console, nicknamed the NX. Unfortunately, AMD should have had these conversations years ago. Today, management’s odds of staging a successful comeback are next to zero.
AMD Stock Is Only Getting Worse
Fundamentally, AMD’s books are a mess. Retained earnings, or the portion of net income that is not distributed as dividends to AMD stock investors, is in the red at -$7 billion, steadily digging itself deeper over the past four quarters. This, of course, is a direct result of the accumulated earnings losses that AMD stock has suffered over the years, and it will likely stymie capitalization efforts necessary to run a new business.
Perhaps the biggest problem for AMD stock — aside from the crippling public image of being perennial silver medalists to bitter rival Intel — is that management has failed to adjust appropriately to the tumbling PC market.
Evidence of this myopia can be found in AMD’s business expenses, specifically its research and development and administrative costs. In the past four quarters, each dollar of business expenditures yielded less revenue, signaling not only industry share loss, but also precipitous declines in productivity rates, particularly in the most recent quarter.
Given the extremely poor financial context, it’s difficult to imagine any direction for AMD stock other than down. Shares have consistently underperformed since the late summer of 2014, and attempts by the bulls to salvage something from the trash heap speak more towards desperation or insanity than legitimate contrarian efforts.
AMD stock might find its niche among Jordan Belfort types speculating on the next great pump-and-dump, but for normal investors, it’s time to pull the plug.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
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