The Reports Of AMD's Death Are Greatly Exaggerated

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Hey Fool, take a chill pill. Kick back with a cold libation and ponder the mysteries of the universe. Your itchy trigger finger doesn't have to click on that "Buy Advanced Micro Devices (NYSE: AMD  ) " button right this second. The stock will stay obscenely cheap for at least a few more weeks.

When even mighty Intel (Nasdaq: INTC  ) reported horrible sales and disappointing earnings a week ago, you had to figure that AMD wouldn't be in much better shape. Well, the numbers are in and, yeah, they're not pretty.

Non-GAAP losses  of $0.69 per share in the fourth quarter on $1.16 billion of GAAP revenue compare badly to the $0.16 pro forma loss per share and $1.74 billion in sales a year earlier. Using the GAAP earnings gives an even bleaker picture, a loss of $2.34 a share in the last quarter.

However, the results are strong enough that you need to keep this stock in your research notebook. Like half of Silicon Valley, AMD is stepping up layoffs and selling off extraneous business units in order to stabilize its balance sheet. Broadcom (Nasdaq: BRCM  ) took digital TV processors off AMD's hands for a cool $141 million last year, and QUALCOMM (Nasdaq: QCOM  ) paid $65 million for AMD's handheld gadget technologies.

Combined with the spin-out of the company's manufacturing operations, which is expected to close in mid-February after a quick shareholder vote, these cost-cutting moves should rebalance AMD a bit. By mid-year, the breakeven point is expected to sit at $1.3 billion, meaning that quarterly revenue above that mark will bring in actual profits. But CEO Dirk Meyer is quick to add that the breakeven goal remarks "are not intended to forecast where revenue is going to be over the course of the next two quarters," so we really shouldn't expect profits that quickly.

Getting above that magic line won't be easy, even after tugging it down a few notches from the current $1.5 billion mark.

But AMD's product portfolio -- with great graphics chips and the delicious 45-nanometer Shanghai CPUs -- hasn't looked this good since the heyday of the Athlon 64, when AMD was dictating new features to Microsoft (Nasdaq: MSFT  ) rather than waiting for Intel to lead the way. And this time, Intel can't afford an all-out price war -- last week's price cuts were just standard business in this ever-cheaper product class.

The stock is priced as if AMD were going belly up imminently, and that is clearly not the case. Indeed, CFO Bob Rivet says that he "will have excess cash over the $800 million to $1 billion comfort zone" after the foundry deal closes. "Which," he says,"is nice to have in this environment."

No kidding. The only way for AMD today is up, though that move might take a while.

Further Foolishness:

Microsoft and Intel are Motley Fool Inside Value picks. The Fool owns shares and covered calls of Intel. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Anders Bylund owns shares in AMD, but he holds no other position in any of the companies discussed here. You can check out Anders' holdings or a concise bio if you like, and The Motley Fool is investors writing for investors.

Read/Post Comments (11) | Recommend This Article (13)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 23, 2009, at 4:28 PM, actue wrote:

    Anders, when I saw the article, somehow I knew it was you. This reminds me of the kid looking through the giant pile of horse manure saying "There has to be a pony in there somewhere".

    I can't believe anybody believes that "The Foundry" can start a new business and compete against the likes of TSMC. The comical part is that they say they are going to do it with fabs in Germany and New York state.

  • Report this Comment On January 23, 2009, at 4:46 PM, glicken wrote:

    Bylund thinks we are all stupid. He has had a position in AMD for a long time and keeps trying desparately to get the price up.

    His comments on AMD's earnings report is hillarious.

    He keeps inventing good out of bad and ignores things he cannot twist.

    He tries to make us think their new chips are selling but ignores the huge write down in inventory that indicates Phenom and Shanghai are a flop.

    Gardner et als should get rid of him He is hurting the "Fools" image.

  • Report this Comment On January 23, 2009, at 5:14 PM, TMFZahrim wrote:

    Oh brother. The health of my tiny AMD stake is the least of my worries these days, even if I did live under the illusion that my ramblings could move stock prices. $41 million's worth of AMD shares change hands every day. It's a big pond and I'm just a tiny fish with a podium and a microphone. ...with bigger fish to fry these days.

    Foolish best,


  • Report this Comment On January 23, 2009, at 5:17 PM, EvilCamaroSS wrote:

    all you people do is psot the negative, boo hoo this and boo hoo that. How about some facts.

    Fact 1. AMD is not nor is going to be bankrupt. when the economy turns around so will the profits.

    Fact 2. IF by the strong of everything holy AMD did become in GRAVE financial problems, IBM would buy out AMD, which will no doubt be atleast double the share price it is now, who doesn't want 100% profit on a stock purchase?

    Fact 3. Shanghai was only released a month ago. How is a write down on "OLD" inventory reflecting that this is a flop?

    SO before you go bashing AMD's Q4 sheet which we all knew would be bad, with all the severance packages and another 600mil write-off on ATi. Just remember when AMD goes up to at least $5 that you could have doubled your money.

  • Report this Comment On January 23, 2009, at 5:27 PM, SkepticalOx wrote:

    This is a pretty good risk-reward proposition if you only put a very small portion of your portfolio in AMD. The biggest risk is if AMD goes belly-up, but that seems unlikely. There are several companies out there that can benefit from an acquisition of AMD, and Intel still needs a competitor.

    When AMD becomes profitable again, this could very easily become a ten-bagger. Tails, you lose a bit in the worse case scenario. Heads, you win big. I'll take that.

  • Report this Comment On January 23, 2009, at 5:32 PM, Brettze wrote:

    Why is everyone quiet about the pending lawuit against Intel by AMD over monopolistic practices all over the world?? AMD had filed the lawsuit, hasnt it?? When is the court date?? Anyone??

  • Report this Comment On January 23, 2009, at 5:59 PM, greenwave3 wrote:

    I'm not really sure why anyone would stand up for AMD at this point. They've had the pulp beaten out of them at the hands of Intel's products for quite some time. And now, in the midst of a global economic downturn, we are supposed to turn this frog into a prince? I really don't think so.

    Technologically speaking, distribution-partner speaking, logically speaking: There is simply no place for weak players in otherwise hyper-competitive industry. AMD will bite the dust soon.

  • Report this Comment On January 23, 2009, at 6:52 PM, actue wrote:

    Folks, over the last 2 years AMD has lost $6.4Bn (with a B) and there is no end in sight. The economy was doing fine for most of that 2 years. Their current market cap is around $1.2Bn. If you think that is anything more than life support, you are nuts.

    AMD isn't suing Intel, they complained to various goverenment anti-trust organizations in the US, Europe, Japan and Korea which in turn, have called Intel on the carpet. Any result from any of these will be insignificant in the grand scheme of things.

    Also, nobody will be buying AMD. The only things they have of value are ATI and the license to make X86 processors. Unfortunately, if somebody buys AMD, the license goes away. I suppose they could sell ATI but this isn't exactly the best time to sell anything...

  • Report this Comment On January 23, 2009, at 10:38 PM, nerd1951 wrote:

    I have to question AMD's strategy of selling its foundries over the long haul. In the leading edge processor business, production technology is half the battle.

    How many times has AMD brought out a killer chip superior to Intel's and the stumbled in production? Meanwhile Intel can develop both processors and production technology at the same time.

  • Report this Comment On January 28, 2009, at 10:40 PM, kevhead64 wrote:

    Fusion ?

  • Report this Comment On March 13, 2009, at 10:45 AM, SnarfJabroni wrote:

    Why do you continually delete my comments, you gutless wonder? They are neither abusive, nor do they violate the terms of service.

    Are you just embarrassed that I continually call you out for your unabashed fandom of AMD, and your perpetual incorrect calls regarding owning AMD stock, Anders?

    This isn't China, is it...?

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