Did AMD Deserve This Drop?

By Anders Bylund | More Articles
October 16, 2009 | Comments (10)

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OK, Fools -- Advanced Micro Devices (NYSE: AMD ) has reported target-crushing sales and earnings, just as I expected. And AMD shares fell 5% on the news. Feel free to build a position in AMD, now that we’ve got all that out of our way.

You could say that AMD got the price appreciation it deserves on Wednesday, riding the coattails of archrival Intel (Nasdaq: INTC ) . Today's drop simply snaps the market back to reality again. And I'm serious about the buy-in opportunity here, because I think Mr. Market's counterintuitive reaction to AMD's report is a myopically shortsighted one. In the long term, this stock has a lot of room to run.

AMD reported $1.4 billion of third-quarter revenue, or 18% growth from the second quarter. An $0.18 net loss per share easily trumped last quarter's $0.49 loss per share -- and both the graphics and CPU divisions reported positive operating earnings this time. Average selling prices per microprocessor went up, the manufacturing arm is getting more efficient, and AMD's tight rein on operating expenses has put the company on track for bottom-line profits in our lifetime.

The product pipeline is showing muscle, too: The Radeon HD 5000 line of graphics processors are crushing the best NVIDIA (Nasdaq: NVDA ) has to offer, and the six-core Istanbul server chip now makes up one-third of AMD's server sales to the big-iron builders like IBM (NYSE: IBM ) and Hewlett-Packard (NYSE: HPQ ) . Plus, CEO Dirk Meyer expressed confidence that the long-awaited Fusion brain-plus-graphics product will ramp up in the second half of 2010 using the next-generation 32-nanometer manufacturing process.

Outgoing CFO Bob Rivet said that AMD is "operating at a grounded and sustainable business model, the benefits of which will be amplified with the return to normal IT spending in the commercial sector." When Microsoft (Nasdaq: MSFT ) releases Windows 7 later this month, there should be a modest rise in chip sales -- but management still set very modest expectations for sales growth.

CEO Dirk Meyer believes that Microsoft's upgrade coupons for today's Vista machines should smooth out the effect of Windows 7 upgrades on system sales, and guides sequential growth to just below the normal 9% level. And this cautious outlook could be the reason behind the price drop. In the words of the market, “Beat the Street all you want, but don't you dare set our short-term expectations too low!”

Meyer's view on that issue echoes the long-term mindset of leaders like Cisco Systems (Nasdaq: CSCO ) CEO John Chambers. Meyer plainly stated, "I personally don't see much reason to signal anything stronger than we said. I'd rather, you know, beat our numbers."

Is this the right time to buy AMD? The comments box is waiting below, whether you agree or just want to call me an AMD fanboy. Have at it!

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Fool contributor Anders Bylund owns shares in AMD, but he holds no other position in any of the companies discussed here. NVIDIA is a Motley Fool Stock Advisor pick. Intel and Microsoft are Motley Fool Inside Value recommendations. Try any of our Foolish newsletters today, free for 30 days. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.

Read/Post Comments (10) | Recommend This Article (22)

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 icon found on every comment.

Report this Comment On October 16, 2009, at 4:20 PM, taishiba wrote:

AMD can be at 8.50 as a yearly price target according to the Citi analyst who has been right so far, while most Wall Street chip analysts have been severely wrong about the run up in AMD stock this past year period. If they return to profits next quarter, we are looking at 10 dollars or more per share if things go very well - stock up!
Report this Comment On October 16, 2009, at 7:05 PM, minibeee wrote:

Don't you know anything about stocks? It's not a question of whether or not AMD deserves to drop or not. The stock's huge runup prior to earnings was already priced in. That's why I sold yesterday at 6.17 My position began at 2.80. After this pullback I'll be back in because Taishiba is right . This stock will be at 8.50 by the end of the year, 14.00 by next June. This was a 40.00 stock at one time and will be going back there. the funny thing about you guys is next article will be negative. Probably next week. The fool's writers always want it both ways.
Report this Comment On October 16, 2009, at 8:13 PM, asH95 wrote:

Realistically, yes, as Wall Street goes there is no love or charity; it’s get out there and make me some money, or get kicked to the curb- that’s Wall Street. As real and cold as Wall Street is, it sometimes kick some potential diamonds-in-the-rough to the curb early, and unjustly….at these prices (5.70- 5.80 ) a little love, a blanket, some tea, and patience, might be all AMD needs to move up and on. 3Q earnings show a pulse on the EKG -"ITS ALIVE"
Report this Comment On October 16, 2009, at 8:33 PM, asH95 wrote:

AMD and ATI contracted to provide next generation Xbox chips
http://www.geek.com/articles/games/amd-and-ati-contracted-to...
Report this Comment On October 17, 2009, at 6:56 AM, TMFZahrim wrote:

minibeee,
if we Fools seem inconsistent to you, it might be because the Fool has no official opinion on any stock. I'm free to write a negative article on some four-newsletter pick, just as I can praise something Tom and Dave Gardner might hate with a passion. And I won't blindly pump AMD to high heavens every time, either -- every company makes mistakes and silly decisions.
I tells it like I sees it, is my point. There is no hidden agenda, no top-down decree to pump or dump anything, anywhere, at any time -- no matter what the most ardent SIRI supporters might tell you.
Fool on,
Anders
Report this Comment On October 17, 2009, at 7:47 AM, bougnoul wrote:

was not AMD going bankrupt?..not too long ago.
If they are alive, are they hiring? is R&D up to par with Intel? Is there upsurge in general electronic box demand?
Biz numbers can be made to look like pageful of this ratio & that. Have we not proven once for all that these mean nothing at all but totally different set of parameters determine who lives & who goes much like Palin's scenario?
Report this Comment On October 18, 2009, at 1:38 AM, asH95 wrote:

if it were obvious,
beta 4
adds OpenCL
GPU
support to t
he existing
CPU
support
puzzle
the future is now
Report this Comment On October 18, 2009, at 2:59 AM, TEBuddy wrote:

Its not that this author is inconsistent. I think there are too many Intel biased Fools, that dont understand semiconductor business and just jump on the bandwagon. Intel's shady character is emerging. AMD's competition to the giant is incredible, and no one else can do it, period.
I believe that many fools are biased, so they can manipulate the market in favor of the masses.
Like said, AMD was supposed to be bankrupt, that was ridiculous manipulation for the mega shorters. I got in at 1.95, and I'm holding long. I sold the Intel stock a month ago at 20.25, up from $13.40. I owned them both, and I use both of thier products. I managed some chip programs. AMD is a great company, so is Intel, but AMD is on the move.
Too many fools post up biased information with no perspective or context, like they have $2B in debt, who cares?? Then today another points out they are cash rich to sustain their business just fine.
Personally I'm foaming at the mouth to get a 13" metal case HP DM3 with a NEO X2 cpu and HD3200 IGP with 64MB dedicated RAM for just $600. AMD found a market and the NEO does dominate the Atom. Atom is great for a netbook, which is probably why the "market share" for Intel has gone "up" even though AMD probably took a little more portion of desktop, server and laptop share.
Report this Comment On October 19, 2009, at 1:51 PM, minibeee wrote:

So you basically admit that next week you might write a negative article on AMD? What good are you Anders? Why should anyone read what you have to say? You clearly don't understand this stock and you want it both ways.I'm not an AMD fan,I'm just able to see a stock on the rise .If you're unable to decide one way or the other I don't see the value in your opinion.
Report this Comment On October 20, 2009, at 5:59 AM, asH95 wrote:

AMD Shortage: Apple empties AMD stock, buys all 4800 series cards
http://www.brightsideofnews.com/news/2009/10/14/amd-shortage...
bougnoul
connect the dots-the future is now

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