Is Advanced Micro Devices Good Enough for You?

Margins matter. The more Advanced Micro Devices (NYSE: AMD  ) keeps of each buck it earns in revenue, the more money it has to invest in growth, fund new strategic plans, or (gasp!) distribute to shareholders. Healthy margins often separate pretenders from the best stocks in the market.  That's why I check on my holdings' margins at least once a quarter. I'm looking for the absolute numbers, comparisons to sector peers and competitors, and any trend that may tell me how strong Advanced Micro Devices's competitive position could be.

Here's the current margin snapshot for Advanced Micro Devices and some of its sector and industry peers and direct competitors.

Company

TTM Gross Margin

TTM Operating Margin

TTM Net Margin

Advanced Micro Devices

44.6%

6.6%

11.1%

Marvell Technology Group (Nasdaq: MRVL  )

59.2%

25%

25%

Intel (Nasdaq: INTC  )

64.6%

35.3%

26.4%

NVIDIA (Nasdaq: NVDA  )

39.8%

6%

7.1%

Source: Capital IQ, a division of Standard & Poor's. TTM = trailing 12 months.

Unfortunately, that table doesn't tell us much about where Advanced Micro Devices has been, or where it's going. A company with rising gross and operating margins often fuels its growth by increasing demand for its products. If it sells more units while keeping costs in check, its profitability increases. Conversely, a company with gross margins that inch downward over time is often losing out to competition, and possibly engaging in a race to the bottom on prices. If it can't make up for this problem by cutting costs -- and most companies can't -- then both the business and its shares face a decidedly bleak outlook.

Of course, over the short term, the kind of economic shocks we recently experienced can drastically affect a company's profitability. That's why I like to look at five fiscal years' worth of margins, along with the results for the trailing 12 months (TTM), the last fiscal year, and last fiscal quarter (LFQ). You can't always reach a hard conclusion about your company's health, but you can better understand what to expect, and what to watch.

Here's the margin picture for Advanced Micro Devices over the past few years.

Source: Capital IQ, a division of Standard & Poor's. Dollar amounts in millions. FY= fiscal year. TTM = trailing 12 months.

(Because of seasonality in some businesses, the numbers for the last period on the right -- the TTM figures -- aren't always comparable to the FY results preceding them.)

Here's how the stats break down:

  • Over the past five years, gross margin peaked at 49.7% and averaged 42.9%. Operating margin peaked at 8.6% and averaged -5.9%. Net margin peaked at 7.3% and averaged -20.1%.
  • TTM gross margin is 44.6%, 170 basis points better than the five-year average. TTM operating margin is 6.6%, 1,250 basis points better than the five-year average. TTM net margin is 11.1%, 3,120 basis points better than the five-year average.

With recent TTM operating margins exceeding historical averages, Advanced Micro Devices looks like it is doing fine.

If you take the time to read past the headlines and crack a filing now and then, you're probably ahead of 95% of the market's individual investors. To stay ahead, learn more about how I use analysis like this to help me uncover the best returns in the stock market.  Got an opinion on the margins at Advanced Micro Devices? Let us know in the comments below.

Seth Jayson had no position in any company mentioned here at the time of publication. You can view his stock holdings here. Intel is a Motley Fool Inside Value recommendation. NVIDIA is a Motley Fool Stock Advisor selection. Intel is a Motley Fool Income Investor recommendation. The Fool owns shares of and has bought calls on Intel. Motley Fool Options has recommended a diagonal call position on Intel. Motley Fool Options has recommended writing puts on NVIDIA. The Fool owns shares of Marvell Technology Group. 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. The Motley Fool has a disclosure policy.


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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 April 26, 2011, at 11:55 AM, rav55 wrote:

    AMD is the company everyone loves to hate but it does compete with Intel and does so successfully. Based on market cap, AMD has an innordinate share of the total x86 cpu market and that is remarkable. In order to win AMD just needs to gain a little.

    One also can't ignore the fact that Apple is sitting with $65 billion in treasure and in order to keep keep that growth going Apple needs to secure stable and cheap pricing for x86 cpu's and graphics gpu's for the iPhone right up throught the Mac pro. It appears that AMD just might be a great buy for Apple, one that would not aggravate the OEMS like a Dell purchase would as Apple O/S is the anti-Windows. AMD low power APU's outperform comparable Intel products and the new Llano and Bulldozer offerings also headed for glory.

    AMD is good enough for me!

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