I Give Up On This Zombie Stock!

Advanced Micro Devices (NYSE: AMD  ) just reported a disastrous third quarter. How bad was it? Let me count the ways:

  • Sales plunged 25% year over year, but we knew that already.
  • The year-ago period's $0.15 of non-GAAP earnings per share morphed into a loss of $0.20 per share.
  • AMD had to write off $100 million of chip inventory that nobody wanted to buy. AMD isn't fixing this by working harder to create great products. The company is running in the opposite direction by...
  • ...firing 15% of its workforce in a cost-cutting panic. The new goal for operating expenses is to break even at quarterly revenue of roughly $1.3 billion, and it'll take about four quarters to get there.

Just to rub salt in the fresh wound, rumor has it that AMD's guillotine will fall in exactly the wrong place, with most of the cuts coming from the engineering department -- the one place where AMD could save itself by investing more and getting better.

Say it ain't so!
I hope that rumor is totally false. Sadly, it seems like exactly the thing a purely financial dude like CEO Rory Read would do. Predecessor Dirk Meyer was an engineer himself, and would never have gotten AMD into this unholy mess.

Look, bad things happen to good companies. But the great ones roll up their sleeves and fight back. AMD's cost-cutting instinct reminds me of a zombie's fixation on brains.

It's the exact same approach that set Hewlett-Packard (NYSE: HPQ  ) on a long, slow road to the middle of nowhere. Circuit City took a similar wrong turn years ago, and we all know how that story ended. I could go on, but you get my drift: You can't cut your way out of trouble when nobody wants what you're selling in the first place.

AMD gives up on life? I give up on AMD.
Rory Read wanted to reassure investors that everything will be all right when he cuts enough corners. I just started a very, very bearish CAPScall on AMD, because this report only underscored how doomed this company is.

Innovation may not be quite dead at AMD quite yet, but Read is going after it with a double-barreled shotgun. Intel (Nasdaq: INTC  )  will win the PC and server processor wars after all these years. NVIDIA (Nasdaq: NVDA  ) is losing its only rival in the graphics game. A healthy AMD might one day have made its way into the mobile market, but sector leader ARM Holdings (Nasdaq: ARMH  ) won't have to worry about that anymore.

AMD might go looking for a buyout and the innovative technology it developed in recent years would be worth a pretty penny to the right buyer. But the execution side of the house is falling to pieces. Barring a buyout miracle, this stock is going to zero. AMD is dead, and just doesn't know it yet.

When it comes to dominating markets, it doesn't get much better than Intel's position in the PC microprocessor arena. AMD's impending exit only makes Intel even stronger. However, that market is maturing, and Intel finds itself in a precarious situation longer term if it doesn't find new avenues for growth. In this premium research report on Intel, our analyst runs through all of the key topics investors should understand about the chip giant. Better yet, you'll continue to receive updates as news develops for an entire year. Click here now to learn more.

 

Fool contributor Anders Bylund has no positions in the stocks mentioned above. Check out Anders' bio and holdings, or follow him on Twitter and Google+. The Motley Fool owns shares of Intel. Motley Fool newsletter services recommend Intel and NVIDIA. 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.


Read/Post Comments (4) | Recommend This Article (4)

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 October 19, 2012, at 6:36 PM, stretcho44 wrote:

    AMD .... "I Give Up On This Zombie Stock!" You might add the company name "AMD" to the title.

    I had to read far into the article to see that you were talking only about AMD and not INTEL. The article showed up on the Intel Yahoo Finance page and it looks like you were talking about Intel.

    YOU SCARED ME!!

  • Report this Comment On October 19, 2012, at 7:39 PM, SnarfJabroni wrote:

    Anders Bylund asks: "How bad was it?"

    Well, it is so bad, that the inveterate AMD apologist and cheerleader Anders Bylund, has finally jumped off their jock.

    THAT'S how bad it is!

  • Report this Comment On October 19, 2012, at 7:52 PM, SnarfJabroni wrote:

    If AMD developed such "innovative technology", how come nobody wants it?

    Any dream of a buyout is just that: a DREAM!

    AMD made the worst acquisition this side of Time Warner/AOL and Daimer Chrysler: paying almost $6 billion for ATI six years ago when Intel was ATI's biggest customer (they dropped them immediately), and discrete graphics was going the way of the buggy whip.

    And now, their COMBINED market cap is a mere $1.55B.

    OOPS!

  • Report this Comment On October 20, 2012, at 9:45 AM, rsinj wrote:

    Nothing indicated in the article about AMD has been any different for years. There was never a good investment thesis for buying. Things are just worse now (and will continue to get even more worse) than previously.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2066334, ~/Articles/ArticleHandler.aspx, 8/30/2014 2:25:43 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement