What Lies Ahead for AMD?

Many an intrepid investor has been scared away from Advanced Micro Devices (NYSE: AMD  ) because the company couldn't make any money. Those days may be over.

Speaking at AMD's annual analyst day yesterday, AMD CFO Tom Seifert said the company is aiming for gross margins between 44% and 48% next year, up from the targeted range of 40% to 45% in 2010. CEO Dirk Meyer underscored the profitable trajectory: "AMD's business model has consistently delivered operating profits this year."

Indeed, AMD's margins have been on a tear lately. After gross margins bottomed out at 37.4% in fiscal 2007 alongside a -19.7% operating margin, the trailing 12 months have seen a rebound to 45.5% and a positive 7.3%, respectively. Yes, AMD is executing better than management expected in terms of gross margins.

Mind you, the company still lags a fair distance behind archrival Intel (Nasdaq: INTC  ) , whose 65.3% trailing gross margin is the envy of the industry -- particularly when you consider that Intel runs its own manufacturing operations rather than outsourcing to third-party foundries such as AMD spinoff Globalfoundries or market leader Taiwan Semiconductor Manufacturing (NYSE: TSM  ) . On the other hand, AMD is doing better than fabless graphics rival NVIDIA (Nasdaq: NVDA  ) , whose trailing gross and operating margins were hit by inventory markdowns and slid all the way down to 36.3% and 0.5%, respectively.

Seifert and Meyer made their comments between introducing its first Fusion products ahead of schedule and drawing up a highly competitive road map for 2012.

Under Meyer, AMD is building a history of delivering on its promises, often ahead of schedule and below budget. It's a refreshing change from the previous regime under Hector Ruiz, and I believe that Meyer's highly technical engineering background gives him a deeper understanding of what chips can and should do, as well as of the resources you need to get the darn things designed and manufactured. It's the same ground-level thinking that helped Reed Hastings make a technical and business marvel out of Netflix (Nasdaq: NFLX  ) . As long as Meyer is at AMD's helm, the positive surprises will keep outnumbering the missteps.

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Fool contributor Anders Bylund holds no position in any of the companies discussed here. Intel is a Motley Fool Inside Value pick. Netflix and NVIDIA are Motley Fool Stock Advisor choices. The Fool owns shares of and has bought calls on Intel. Motley Fool Options has recommended buying calls on Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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 (4) | Recommend This Article (7)

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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 November 10, 2010, at 9:00 PM, austec wrote:

    THE HEAD OF INTEL, OTELLINI, HAS A BACKGROUND IN SALES AND MARKETING. DIRK MEYER HAS A BACKGROUND IN ENGINEERING.

    OTELLINI UNDERSTANDS HOW TO BREAK LAWS AND CREATE A WORLDWIDE DEATH GRIP ON COMPUTER MANUFACTURERS. DIRK MAKES CHIPS.

    UMM... I'D PREFER TO INVEST WITH THE COMPANY WHO KNOWS HOW TO ENGINEER CORRUPT MONOPOLIES AROUND THE WORLD, HONESTLY. WOULDN'T YOU?

    DON'T INVEST BASED ON WHO HAS A BRAIN AND A CONSCIENCE; INVEST BASED ON WHO WILL DECIMATE THE COMPETITION. THAT IS INTEL. WELL, WHAT CAN I SAY? MIGHT IS RIGHT.

  • Report this Comment On November 10, 2010, at 10:37 PM, TEBuddy wrote:

    There is something to be said for actually knowing the companies you invest in and agreeing with their business practices.

    If you could invest in a company because you knew they sold blood diamonds, operated sweat shops, or cheated consumers and can live with that, then go ahead. You reap what you sow, and carma is a bitch!

  • Report this Comment On November 11, 2010, at 2:41 AM, khaledmrd wrote:

    The Future will Be Tablets, Internet TVs& All in One Gadgets

  • Report this Comment On November 11, 2010, at 9:24 AM, ACCTech wrote:

    Betting on the rich dumb bully, that copies things from others, is never the smart thing to do.

    Maybe the bully will impress other wanna be bullies, but at the end everybody turn their backs to them.

    I agree with the article in that AMD is being nicely manage to potentially a very nice technological future success.

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