One More Weak Quarter for AMD? Bring It On!

"One called him a nobody.
No, I said, he was a failure.
You can't remember
a nobody's name, that's why
they're called nobodies.
Failures are unforgettable."

-- From "Failure," by Philip Schultz

Advanced Micro Devices (NYSE: AMD  ) , the eternal underdog in the two-horse race for computer-processor supremacy, just gave us an early look at its first-quarter sales figures. It ain't good, folks. On the other hand, it's not the end of the world, either.

The bad
Management had expected to see a normal seasonal drop from the fourth quarter, to the tune of about 7% below the $1.77 billion produced in the last reporting period. But because of "lower than expected sales across all business segments," it's a 15% slide instead, to about $1.5 billion.

The announcement was made with a classic Michael Caine deadpan delivery. There were no explanations, excuses, spin attempts, or hand-waving to distract from that one gloomy fact. The only other tidbit in there was a 10% payroll reduction plan, starkly presented. No ifs, ands, buts, or whys. Heads are rolling in the next two quarters, and we don't know where the reductions are hitting the hardest.

If AMD hopes to keep up with Intel (Nasdaq: INTC  ) , I hope that the research-and-development engineers stay largely untouched. At the moment, AMD is finally getting some promising new products out the door, and this is no time to slow down the investment in future development.

Some would argue that the chip giant is about to push AMD over the edge to stand alone at the top, and that the smaller rival must therefore simply fight for survival rather than for some uncertain future success. That is, of course, total baloney.

The ugly
If Intel really wanted to kill AMD, it could easily have afforded to keep the price wars of the past two years going quite a bit longer, with even more aggressive pricing moves. But it didn't do that. The war is over. That's because Intel needs AMD or some other smaller competitor, for a couple of reasons.

AMD is the Apple (Nasdaq: AAPL  ) to Intel's Microsoft (Nasdaq: MSFT  ) , hanging around even in the worst of times to keep the market leader on its toes. Regulatory bodies here and overseas might have issues with a complete monopoly situation, and major customers such as Hewlett-Packard (NYSE: HPQ  ) and Dell (Nasdaq: DELL  ) certainly like to see a competitive supplier situation as well. Take the Athlon out of semiconductor history, and Intel's incentive to innovate would have withered. It's in the best interest of IBM (NYSE: IBM  ) to ensure that a new generation of mind-blowing performance is always right around the corner, so that its end users have an incentive to upgrade as often as possible. And what the system builders want, the system builders get. Without them, there'd be no AMD -- or Intel.

The good
That's why AMD's management is not crazy for taking its financial situation to the brink of bankruptcy, as it did last year. That risky move may have been the warning flag that told Intel to back off the price pressure at last and let its smaller competitor breathe for a while. AMD might flail around a bit under heavy pressure, but it's unlikely to go under completely.

Right now, AMD's stock is about as depressed as it will ever be, and a slew of impressive products is just now hitting sales channels. We'll hear more about that in next week's earnings announcement. I'm not saying that it's a risk-free investment -- nothing ever is -- but I'd be shocked to see anyone buying AMD stock today and not making money over the next six months.

Failures are painful but fleeting, but AMD will never be a nobody. You can take that to the bank.

Further Foolishness:


Read/Post Comments (0) | Recommend This Article (7)

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.

Be the first one to comment on this article.

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: 616546, ~/Articles/ArticleHandler.aspx, 10/25/2014 6:36:22 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