The Street's Take On Advanced Micro Devices' Earnings Report

Are PC’s Turning The Corner?

Oppenheimer analysts Rick Schafer, Shawn Simmons and Joseph Zaccaria highlight the sales beat, revenue miss and guide down in fourth-quarter sales for Advanced Micro Devices.

Management now expects fourth quarter sales to be down 10 percent quarter-over-quarter to approximately $950 million (well below consensus of $1 billion) as modest growth in computing/graphics can only partially offset seasonal declines in semi-custom.

Related Link: Advanced Micro Devices Selling Off Into The Close, Company Is Scheduled To Report After Hours Thursday

On the bright side, they pointed out the new joint venture with Nantong Fujitsu Microelectronics, which, when closed, will provide AMD with $320 million in cash, an infusion it really needs to somewhat offset the approximately $260 million cash burn the firm forecasts through 2016.

According to a report issued Friday, “While AMD's updated product road-map could help re-accelerate non-PC growth, and new semi-custom design wins are encouraging, time-to-revenue (2H16 at the earliest) and structural PC challenges likely remain an overhang for the foreseeable.” Given the above-mentioned headwinds, however, the analysts maintain an Underperform rating on the stock.

A Mixed Report

Canaccord analysts Matthew D. Ramsay and Steven Lee, on the other hand, are not as bearish on Advanced Micro Devices, and thus maintain a Neutral rating and $2.00 price target on the stock.

The experts described the third-quarter results as “solid,” and noted that the sale of its assembly and test business to a minority-owned joint venture “should allow for increased focus, a welcome cash infusion, and relieve pressure on the business to allow the new management team to continue to gradually shift the business and deliver its solid long-term product roadmap.”

Overall, the analysts think the company’s diversification strategy continues to progress gradually, while a renewed roadmap could poise it for “more defensible long-term sales beginning in earnest in 2H/16 as the roadmap moves onto FinFET nodes.”

Moreover, they pointed out, while the third saw both businesses deliver quarter-over-quarter growth for the first time in several years, revenue still fell roughly 25 percent year-over-year, and “another restructuring is just underway to properly size the cost structure.”

Finally, they pointed out, although Advanced Micro Devices' engineering teams continue to present “well-architected APU and GPU products,” competing companies Intel Corporation (NASDAQ: INTC) and NVIDIA Corporation (NASDAQ: NVDA) still have foundry and scale advantages. So, although Canaccord analysts have confidence in the leadership under new CEO Lisa Su, they are waiting for “tangible signs of multi-quarter business stability and new FinFET products before becoming more constructive.”

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.

Image Credit: Public Domain