Nice Comeback, AMD! What's Next?

Just when Advanced Micro Devices (NYSE: AMD  ) looked ready for last rites, the processor designer slapped away the coroner's hand with an angry, "I'm not dead yet!"

The stock took a deep plunge a month ago as management lowered revenue guidance. On Thursday, AMD followed up with actual sales at the lower end of the new target range and investors greeted the news with confetti and streamers. Share prices jumped as much as 13%, coming within 7% of repairing the damage from that fateful guidance update.

There are some details to get genuinely excited about in this report:

  • The server chip division saw sales rising 27% over the seasonally challenged second quarter.
  • Graphics revenue jumped 10% quarter over quarter while segment profits more than doubled. AMD is beating NVIDIA (Nasdaq: NVDA  ) black-and-blue in the market for add-in graphics cards; NVIDIA saw sequentially flat graphics cards sales in its most recent quarter.
  • Management claims to be taking notebook market share from Intel (Nasdaq: INTC  ) with a 35% sales boost.

But those strong segments were overshadowed by a radically weak desktop division as manufacturing problems with the newest and most advanced chips took their toll in this area. AMD says that demand for those factory-constrained chips is high and that sales should start rolling once GLOBALFOUNDRIES gets everything back on schedule.

But early reviews of the so-called Bulldozer architecture haven't been kind. I can't imagine this disappointing product line, which reminds me a lot of Intel's failed and euthanized Pentium 4 strategy, making a difference in high volume.

Meanwhile, both MIPS Technologies (Nasdaq: MIPS  ) and ARM (Nasdaq: ARMH  ) are busy rolling out power-sipping server products of their own. ARM already owns the mobile space thanks to a stable of super-successful partners ranging from Samsung and Marvell Technology (Nasdaq: MRVL  ) to Apple (Nasdaq: AAPL  ) and its in-house chip design efforts. These guys will invade the data center long before AMD or Intel move into our pockets and purses.

I used to insist that AMD was worth about $10 a share. Today's market action might point in that direction. Don't jump to any hasty, blue-eyed conclusions: That $10 target assumed that the Bulldozer architecture would be ready to flatten the data center while other chips made an unstoppable move into notebooks and netbooks.

Only half of that thesis is on track today, and that's not good enough. Today's $6 price looks just about right -- but only if you believe that AMD will continue to win inches and feet of battleground in the portable arena. If not, the stock is too expensive right now.

Will AMD fly or flop from here? You've seen my theories, but the only way to know for sure is to keep an eye on the company. Our Foolish watchlist feature can help you do just that. In a single click, you can set up access to a steady stream of news and Foolish analysis on AMD, Intel, or any stock you like. Just click here to get started.

Fool contributor Anders Bylund holds no position in any of the companies mentioned. The Motley Fool owns shares of Apple, Marvell Technology Group, and Intel, and owns calls on Intel as well. Motley Fool newsletter services have recommended buying shares of Intel, NVIDIA, and Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Intel. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Motley Fool newsletter services have recommended writing puts in NVIDIA. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check out Anders' holdings and bio, or follow him on Twitter and Google+. We have a disclosure policy.


Read/Post Comments (5) | 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 October 31, 2011, at 7:23 PM, GeminiVI wrote:

    You need to take into account all the dirty tricks Intel has done to repress AMD and monopolize the CPU market.

    Relevant:

    http://www.zdnet.com/blog/apple/did-amd-take-a-bite-out-of-i...

  • Report this Comment On October 31, 2011, at 11:45 PM, rav55 wrote:

    Whats next? Growth! Increased market share.

    That thing about ARM owning the mobile space. Hmmm. Like Intels owns the x86 space? And little AMD is chipping away at it slowly but surely?

    ARM is looking at the most successful CPU manufacturer in the world eyeballing it's little niche. ARM may be a big fish in the mobile pond. But Intel is a hungry great white. If Intel wants that space then it wil get it.

  • Report this Comment On November 01, 2011, at 12:42 AM, rav55 wrote:

    Last rites? Hyperbole! GloFo stumbled on the Llano execution. With TSM joining GloFo with Llano production this next quarter should be huge.

  • Report this Comment On November 01, 2011, at 1:17 PM, Brettze wrote:

    AMD needs to be sold to a computer maker like HP or even IBM.. that has deep pockets necessary to keep research and development going. AMD no longer has its own fabs because AMD is too small to handle both manufacturing and R&D so it chose R&D . AMD R & D always keep ahead of manufacturing (shrink die). So this is why deep pockets is necessary to keep manufacturing up to snuff to handle the brainwork of AMD which is very good .AMD would be better able to attract additional talent once AMD is bought by a deep pocketed sutior.

  • Report this Comment On November 01, 2011, at 1:18 PM, Brettze wrote:

    HP just decides to stick with X86 computer manufacturing so it could mean that HP might buy AMD ..

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