Why Future For Advanced Micro Devices (NYSE:AMD) Looks Dark?

Posted by Lynn Eisler January 23, 2014 0 Comment 1759 views

Advanced Micro Devices (NYSE:AMD) has reported Q4 revenues recently and it saw some positive results from the latest quarter of last year. The company reported an EPS of $0.06 along with revenue of $1.59 billion. The consensus estimates that were made for the company were accurate. The gross margin for the company did see a dip by 1% as compared to Q3 2013 this despite of a $7 million benefit from reserved inventory sales. The high point for Q4 2013 was certainly the rise in the revenue from graphics. The profit came mostly from the sales of Semi-custom chips which generated a total operating profit of around $121 million. The profits may not be monumentally huge to turn around the company’s fortunes but they were still substantial to support some other segments of AMD.

Other divisions for AMD however have been suffering lately because of a multitude of factors. For instance the computing division saw a dip in revenue by 13% year over year, this despite the fact that the sale price for microprocessors increased. This is also an indicator that the market for chipsets and notebooks is dismal.

From an investors point of view

From an investor’s point of view, this quarter is not bad when it comes to numbers and the output. However in the long run, investors will surely think about what’s to come. For example, if the company can only generate earnings of $0.06 in a quarter despite encouraging trends and the launch of next gen platforms from giants like Microsoft and Sony, what can the company do when the market does not favor them anymore? Does this mean that this is as good as it gets for the company? These are some questions that the management at AMD will have to address and quickly.

Major areas to address

Two major issues were the key points raised in the earnings call. One, the lower cash balances guided by the management which is usually a good thing but in this case where the company is targeting cash levels in excess of a billion USD, $200 million down from the mark is certainly a cause for worry. Two, the CEO avoided questions regarding additional leg down for gross margins. Professional investors will surely go for a wait and see policy which could mean bad news potentially for AMD.

About Lynn Eisler

Lynn Eisler is a national news reporter focusing on economic issues, data analysis and the financial health of state and local governments. Lynn has been honored with the H.L. Mencken Award for Investigative Reporting, the Champion of Justice Award for reporting on the drug war, and the John Hancock Award for business reporting. Lynn was also a Knight Medical School Fellow at the University of Michigan.

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