Why AMD Shares Short-Circuited

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What: Shares of Advanced Micro Devices (NYSE: AMD  ) continue to fall as the trading day wears on, and have now lost over 16% of their value. The stock is now at levels below all but the very worst of the 2008-2009 recessionary period.

So what: Revenue and earnings both came in below estimates, and even those estimates had conservatively guided lower than the year-ago period. AMD's $1.27 billion quarterly revenue was a full third lower than its year ago take of $1.69 billion. EPS losses of $0.21 per share -- a $0.20 loss when ignoring one-time items -- represented a whopping 62% drop from the year ago period's result, as well as current-quarter analyst expectations of a $0.13 loss per share.

AMD also announced that it would lay off 15% of its workforce, or about 1,900 employees. The company's executives also expect to see another revenue decline of 9% in the fourth quarter, which will place it in the $1.16 billion range. AMD is now targeting operating income breakeven at $1.3 billion by the end of 2013.

Now what: This was a bloodbath. Analysts at Bernstein Research and FBR Capital Markets downgraded AMD shares to "hold" after the drop, and Moody's downgraded the company's corporate bond rating to B1, warning that it could be cut even further.

Even blue-chip tech stocks have had difficulty meeting revenue expectations, as both Intel (Nasdaq: INTC  ) and IBM (NYSE: IBM  ) suffered year-over-year declines in their latest quarterly earnings. Intel's loss was clearly not AMD's gain and, for the time being, the tech sector is looking much more vulnerable than it did at mid-year. AMD, as a second-tier player, is at greater risk, and its turnaround strategy is going to take time to put together. Now does not look like a good time to jump into this leaky boat.

Want more news and updates? Add AMD to your Watchlist now.

Any chipmaker rebound is likely to start with Intel, which faces similar headwinds as AMD, though its superior market position provides a better cushion. Our Foolish analysts have devoted themselves to digging up all the information on Intel that they can to determine whether the processor giant is still a good stock for the long haul. All that information's available in our exclusive premium research service, which comes with a year of regularly updated reports for interested investors. Is Intel still worth a spot in your portfolio? Click here and subscribe today to find out.

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more news and insights.

The Motley Fool owns shares of Intel and International Business Machines. Motley Fool newsletter services have recommended buying shares of Intel. Motley Fool newsletter services have recommended writing puts on Intel. Motley Fool newsletter services have recommended creating a synthetic long position in International Business Machines. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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