3 Reasons Not to Buy AMD

Semiconductor manufacturer Advanced Micro Devices (NYSE: AMD  ) has been trading on the cheap lately. It has the trappings of an appealing value play, but there's a lot more to AMD than meets the eye. Here are three reasons why it's probably best to stay away from this stock.

1. The PC's no longer the thing
As proven most recently when Dell (UNKNOWN: DELL.DL  ) went private, personal computers have taken a backseat to the mobile phone and tablet. Even heavyweights like Microsoft and HP are taking a hit in computer sales, and for a company like AMD, which has put extra emphasis on building semiconductors for personal computers, this change in the wind could cause setbacks for some time to come.

AMD isn't the only company struggling with this. Its greatest rival, the much larger Intel (NASDAQ: INTC  ) , has suffered its share of weaker-than-expected earnings calls lately. As fellow Fool Anders Bylund put it, the fact that both companies are struggling (as opposed to one triumphing over the other) is a sign that something has gone deeply awry in the world of IT.

2. A dismal past year
Besides a turn in the tech tide, Advanced Micro Devices has had to answer for some dreary recent financial statements. The company saw a 17% drop in revenue during 2012, along with operating and net income losses of more than $1 billion each.

AMD isn't just dwindling in sales. Its profit margins show that last year, the company was producing its goods inefficiently. During its most recent two quarters, AMD has additionally burned $239 million worth of cash. It's difficult enough for a company to adapt to changing trends if its business structure is stable. AMD's weak financial skeleton could make any change in the tech climate seem like a fatal blow.

3. Downgraded rating
Because of the business' recent financials, AMD was recently given a downgrade by the Fitch Ratings agency. Fitch based its assessment on a belief that the company's lack of cash flow would drive AMD to its "minimum operating level."

A low rating is probably the least of AMD's worries at the moment, but it can immediately affect its stock price, as it signifies the market is growing wise to its struggles. In this case, AMD's price dropped 2.6% to $2.67 after its downgrade. It's a small drop, but a drop nonetheless, and currently AMD isn't doing much to prove it can shake it off.

Save your money -- at least for now
If AMD can't adapt to its surroundings, it's going to get swallowed up. Now that the PC market is on its way down, AMD needs to spend less on producing its goods, or else its financials could get even worse, and the company could sink even faster. There are clearly holes in this boat, and investors may want to think twice before they step into it.

AMD's rival Intel may have dominated the PC microprocessor arena, but now 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 for an entire year. Click here now to learn more.


Read/Post Comments (12) | Recommend This Article (2)

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 March 01, 2013, at 7:11 PM, ColoradoHamster wrote:

    This is a pretty content-free article, unless you have not been following the company at all. AMD presented their plan to stabilize their cash flow and grow their business again in their last quarterly report. Will it be successful? I don't know, but how about talking about that instead of just restating the obvious.

  • Report this Comment On March 01, 2013, at 10:33 PM, longjon123 wrote:

    This article disappoints, particularly because now is the time of maximum skepticism with AMD. To further perpetuate it after the negatives have been baked in indicates an ill-timed article. In particular, it misses the sweet spot regarding relevancy. CEO Rory Read expressed a desire to diversify away from PCs and he has shown a willingness to do what it takes. It will happen, in my opinion, and the ratings companies will come around. That said, a big risk not mentioned here is the off balance sheet liabilities due to GlobalFoundries. These are things a few extra minutes of research would reveal about AMD. This article does not inform. Rather, it segways into a superficial platform designed to sell a research report on Intel. What a shame.

  • Report this Comment On March 02, 2013, at 1:15 AM, rav55 wrote:

    It is evident that the Fool is the author who tries to play analyst.

  • Report this Comment On March 02, 2013, at 7:24 AM, lokiracer wrote:

    "The PC's no longer the thing" -- Good thing AMD is in all the next-gen consoles then.

  • Report this Comment On March 02, 2013, at 11:17 AM, asH95 wrote:

    Here's the info you desperately need

    http://www.tweaktown.com/news/28847/amd-looking-to-get-back-...

    AMD captures highest ever market share in India

    http://news.techeye.net/chips/amd-doing-well-in-india

    http://www.informationweek.in/hardware/13-03-01/amd_captures...

    Rory Read President and CEO

    Advanced Micro Devices

    Advanced Micro Devices at Morgan Stanley Technology, Media & Telecom Conference

    Tuesday, February 26, 2013 1:55 p.m. PT

    http://cc.talkpoint.com/morg007/022513a_mc/?entity=126_6W1Y5...

  • Report this Comment On March 02, 2013, at 5:44 PM, VincilRay wrote:

    Pointing out the obvious....Excessive energy required for retro X86 client platforms, a revolution in new low power ARM based mobile non-traditional platforms, and a monumentally awkward Windows 8 are the key factors one should examine when considering placing bets on firms genetically tied to the traditional PC ecosystem. First quarter numbers are coming soon.

    Some Americana to illustrate

    http://www.youtube.com/watch?v=kqio-PxEjHc

  • Report this Comment On March 03, 2013, at 3:36 PM, Roleplayer wrote:

    This author clearly has not been following AMD. An enormous part of AMD's problems was the new board members who put Global Foundry's needs ahead of AMD's. This cost AMD all its upper management and most of the cash as AMD as had to buy off GF to get out of wafer commitments they could not sell. Those costs are now completely behind AMD, and TSMC is doing much better as a foundry partner. AMD has its troubles, but is in all three new gaming consoles, lots of new tablets, and is fairly priced if not cheap at the current price.

  • Report this Comment On March 03, 2013, at 5:34 PM, twosenseworth wrote:

    Back in late October, CEO Rory Reed laid off ~1,500 employees, the vast majority of them coming from the engineering departments. Since then, the rank and file employees have been leaving like rats deserting a sinking ship whenever a more stable career path opens up to them. Morale? The beatings will continue (including another layoff rumor to happen shortly) until said morale improves.

    The chips for the next SONY playstation and the next XBOX are essentially identical, but you'd have to know a bit about computer architecture to understand this fact. Clone a chip, add a dongle or two, and viola, the XBOX gets revision one. Contrary to opinions expressed here, thsi si the low end margin of the business, and in this economy, I don't see people rushing out to buy new game consoles when they can't fill their gas tanks.

    As for AMD's entry into ARM, they are way behind before they even got started.

    AMD is in trouble and they know it. As for the readership here, learn how to decipher press releases.

  • Report this Comment On March 04, 2013, at 2:23 AM, jhf678 wrote:

    i think amd will disappear this year like cramer has predicted. even intel is in trouble. smartphones and tablets are the focus right now. amd and intel are so far behind. microsoft is also trying to enter the tablet wars without success.

  • Report this Comment On March 05, 2013, at 6:10 PM, georgec908 wrote:

    with due respect to the author, this information and opinion is absolutely ridiculous. AMD produces computing chips and processors for high power, high output gaming consoles. In order to analyze a company, first view their mission statement. Next view their history. The last time a landmark system came out was between november 2005 and the second quarter of 2006. Those being the Xbox 360 and the Play Station 3. When these products were released, AMD was selling its shares for (at times) $42USD. Being an economics major, I have been tracking this company for several months. As Sony and Microsoft both plan on releasing their systems in the next few months, AMD should follow trends similar to their trends in 2005. In 2000, near the time of Y2K, AMD traded at record highs. They split their market shares in I believe 2002. By mid 2003 they were back to around $3.00USD. The technology industry to begin with follows cyclical patterns. Any economist will agree to that. Since 2007, AMD has tried to balance their losses by increasing their market cap. They are expected to be connected with two major gaming platforms and one computer platform release in the next 15 months. Now, I am not saying we will see AMD back at $42USD in the next 12 months. However, I think that at $2.42, inches from their 52 week minimum and months away from another technology boom, it would be silly to overlook AMD as a prospective company. The power that authors have to slander a companies reputation is ridiculous. Do some homework and buy AMD before their profits turn and they look to buy you...

  • Report this Comment On March 14, 2013, at 7:33 AM, rav55 wrote:

    Motley Fool does seem to "Protest too much" about AMD. Nobody beats on AMD the way that Motley Fool does. To spend that much effort over years of beating up on a company there has to be a reason for it. Perhaps it is a reason worth looking into by the SEC.

  • Report this Comment On May 09, 2014, at 9:57 PM, Reesespwn wrote:

    Why buy a processor that's only 10-15% more power to its previous variation or, new NM, No ones going to purchase an upgrade unless they are seriously power hungry, or have wads of money pouring out of their pockets. AMD poor performance upgrade to the bulldozer, piledriver, has no respective reason to upgrade, they are just pouring out products no one wants because the overall performance isn't worth it. The typical computer enthusiast will upgrade down the road when a substantial improvement has been made, And Intels new variation of their own 22nm process Haswell shows us a small increase lost instructions and much more heat. Hence the reason most people would purchase a new generation of graphics cards over the unbelievably small increase in performance. i digress.

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