AMD Is Still Worth $10 Per Share

Like Intel (Nasdaq: INTC  ) before it, Advanced Micro Devices (NYSE: AMD  ) reported a soft consumer market in the third quarter, but pretty strong business overall. Unlike Intel, AMD is on the verge of pushing out brand-new products in several operating segments, which makes me inclined to forgive its modest inventory buildup.

AMD's revenue came in at $1.62 billion, a 2% sequential drop that lands in the upper half of updated guidance. On the bottom line, non-GAAP earnings exploded from breakeven a year ago, and $0.11 per share last quarter, to $0.15 per share this time around. That would have been a positive surprise before everyone lowered their targets on AMD's revenue warning. Even in a bleak environment, AMD is finally a dependable profit-maker again after a few years in the poorhouse.

One quick accounting note: Like most of my colleagues, I tend to prefer GAAP numbers over the more malleable and manipulation-prone non-GAAP figures. In this case, the negative contributions from a couple of decidedly non-core items made a big difference, and I think it's more fair to consider AMD's operations without them:

  • Early payment fees on a bushel of refinanced debt added up to $24 million.
  • The Globalfoundries chip manufacturing arm, which has been spun off to deep-pocketed investors and now aims to take on market leader Taiwan Semiconductor Manufacturing (NYSE: TSM  ) on its own, inflicted a $186 million non-cash charge on AMD.

The company is considering the "appropriateness" of its current equity method of accounting for Globalfoundries, and I wouldn't be shocked to see a change in coming quarters. I'm happy to treat Globalfoundries as a "discontinued operation" for all intents and purposes.

AMD is gearing up to release a new graphics lineup next week, and the first Fusion products later in the quarter. There's some debate about whether NVIDIA (Nasdaq: NVDA  ) is taking market share from AMD in the graphics market, but next week's launch should settle that score for a while.

Analyst opinions on AMD range from a low target price of $5 to $13 per share, including the $12 target set by Gleacher analyst Doug Freedman, who justifies that lofty valuation with predictions of a banner year for the company in 2011. Me, I'm sticking to my $10 price estimate, which still makes the stock a cheap buy today. What we just saw is pretty close to what I expected out of AMD's third quarter.

Follow AMD in a single click by adding it to your watchlist. You never know when some juicy news will drop in on this mercurial market sector.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. Intel is a Motley Fool Inside Value pick. NVIDIA is a Motley Fool Stock Advisor selection. Motley Fool Options has recommended buying calls on Intel. The Fool owns shares of Intel. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. 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 (7) | Recommend This Article (5)

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  • Report this Comment On October 15, 2010, at 3:05 PM, lazytype wrote:

    Well, INTC has better PE, pays divident, stronger brand, can raise prices while AMD has to make a cheaper product which is bad for stockholders. Also Intel runs MAC

    I love AMD as a consumer but as an investor I have to say, at current price, INTC is a better and safer bet.

  • Report this Comment On October 15, 2010, at 4:08 PM, jsnod25 wrote:

    "Also Intel runs MAC"

    Im sorry to disappoint, but as far as the GPU sector of mac, AMD Radeon is the GPU used in iMAC and MAC PRO's... next step might be to throw AMD's processor's in and lower the cost of their products overall, making them a better price point for consumers looking at MAC, but cant afford it given the current economic situation. APPLE is slow to upgrade their hardware, and that might be a good thing, because AMD's Bobcat and Bulldozers are due out, and the Fusion will be a great mobile processor. Then there is AMD's CEO mentioning they will be looking at getting into the tablet processor industry once the numbers warrant a R&D investment. Don't count AMD out, just look back at their numbers in 2006, they have done it before and its a matter of time before they do it again. They also dont waste as much money in advertising campaigns, which affects the cost per chip to the consumer. Its also always been their motto to make a better chip at a cheaper price. I don't want to imagine a world where AMD doesn't force Intel and NVIDEA to compete for better products at better prices.

  • Report this Comment On October 15, 2010, at 5:35 PM, robbdmc wrote:

    It's just a matter of time before AMD starts pumping out big profits. They are much lower than they should be. This company isn’t doing nearly as well as Intel, but it doesn’t matter. It's way undervalued. AMD has proven that it can survive in a recession, and it is still working on making its business more efficient. This is a disciplined company that will reap the fruits of its labor when consumer demand returns.

    Everyone also seems to be forgetting that AMD has a history of offering similar performance to Intel at a discounted price. Consumers and businesses will be looking to use this company when cutting costs. The fact that Intel is doing so much better right now makes AMD a fantastic buy.

  • Report this Comment On October 15, 2010, at 5:35 PM, robbdmc wrote:

    It's just a matter of time before AMD starts pumping out big profits. They are much lower than they should be. This company isn’t doing nearly as well as Intel, but it doesn’t matter. It's way undervalued. AMD has proven that it can survive in a recession, and it is still working on making its business more efficient. This is a disciplined company that will reap the fruits of its labor when consumer demand returns.

    Everyone also seems to be forgetting that AMD has a history of offering similar performance to Intel at a discounted price. Consumers and businesses will be looking to use this company when cutting costs. The fact that Intel is doing so much better right now makes AMD a fantastic buy.

  • Report this Comment On October 16, 2010, at 11:24 PM, aleax wrote:

    @varsovia, "INTC has better PE" - *uh*? Say WHAT?

    INTC's P/E is 10.40 - AMD's is 4.46, less than half as much.

    Don't get me wrong, I *love* INTC (it's one of the "overweight long-term positions" in my portfolio!) -- I'm just totally perplexed by your apparently weird use of "better" in this context!

    Care to explain what you meant...?!

  • Report this Comment On October 17, 2010, at 1:18 PM, TMFRhino wrote:

    Aleax,

    That P/E level is driven from profits derived from their legal settlement. Excluding that MASSIVE one-time charge, Intel's much more cheaply priced on a P/E level.

    Best,

    Eric Bleeker (TMFRhino)

  • Report this Comment On October 18, 2010, at 5:27 AM, TMFZahrim wrote:

    The "sugar daddy" is already in place as AMD/Globalfoundries develops process technologies in cooperation with IBM and Samsung -- not small potatoes. Also, the manufacturing arm now has independent financial backing from oil billionaires in Abu Dhabi. You gotta hand it to Intel for racing ahead despite these substantial assets in AMD's pocket, and to AMD for staying competitive despite perennially older and less optimal manufacturing processes. None of this will change anytime soon.

    Anders

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