Why Advanced Micro Devices, Inc. Shares Plummeted

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Advanced Micro Devices, Inc. (NYSE: AMD  ) plunged 12% Wednesday, after the company turned in decent fourth-quarter results but offered disappointing forward guidance.

So what: Fourth-quarter 2013 sales rose 38% year over year to $1.59 billion, compared with analysts' estimates which called for sales of just $1.54 billion. Despite the revenue beat, however, AMD still only recorded inline adjusted net income of $45 million, or $0.06 per share. Gross margin also fell by one percentage point to 35% as AMD's low-margin console gaming business continued to forge ahead.

In addition, AMD stated that first-quarter 2014 revenue is expected to decrease 16%, plus or minus 3%, compared with an 11% fall forecast by analysts. Meanwhile, gross margin is expected to remain depressed at around 35%.

Now what: Shares of AMD don't look particularly compelling to me, trading at around 37 times next year's estimated sales -- and keep in mind those estimates are likely to fall once analysts have time to fully digest today's news.

However, I think investors would be wise to at least add AMD to their watchlists, considering it is faring significantly better than it was in the same year-ago quarter, when the company recorded a harrowing adjusted $102 million net loss. AMD still has plenty of work to do -- most notably in chipping away at its massive $2 billion long-term debt pile -- but could stand to reward patient long-term investors if it can continue marching toward sustained long-term profitability.

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Read/Post Comments (4) | Recommend This Article (3)

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  • Report this Comment On January 22, 2014, at 5:56 PM, thevinci wrote:

    I'm not sure why they are still at a loss. Their graphic cards were sold out and in demand during Q4. Retailers marked up the price by 25%. They are making litecoin miners and they still lose money. What a stupid company.

  • Report this Comment On January 22, 2014, at 6:05 PM, bluesky64 wrote:

    AMD $ 3.66 will double in price in 2014.

  • Report this Comment On January 22, 2014, at 11:53 PM, CraigWPowell wrote:

    Not many companies can report gross margin of 35%.

    AMD is a Strong BUY at this level, this is also in accordance with:

    ** Citigroup

    *** I Know First system

    Positive stance on AMD in 2014

  • Report this Comment On January 23, 2014, at 11:27 AM, TMFSymington wrote:

    @CraigWPowell, Make sure you're not confusing gross margin (profit after accounting for cost of labor and materials / sales) with operating margin (earnings before interest & taxes / sales) or net margin (profits after taxes / sales).

    By comparison, NVDA had gross margin above 55% last quarter, and INTC was at 61%. Yes, AMD is still on the mend, but they also know they have plenty of work to do.

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