Foolish Forecast: AMD Stock Stays Affordable

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Microprocessor manufacturer Advanced Micro Devices (NYSE: AMD) reports second-quarter earnings tonight, on the heels of a mildly positive quarter from the competition. AMD's first quarter was a disappointment, and these shares are skimming close to penny-stock prices. What's next?

What Fools say:
Here's how AMD's CAPS rating stacks up against some of its peers and competitors:

Company	Market Cap (billions)	Trailing P/E Ratio	CAPS Rating
Intel (Nasdaq: INTC)	$111.8	18.6	****
Broadcom (Nasdaq: BRCM)	$15.3	73.3	***
NVIDIA (Nasdaq: NVDA)	$6.3	8.1	****
Advanced Micro Devices	$3.1	N/A	**
ARM Holdings (Nasdaq: ARMH)	$2.5	36.6	****

Data taken from Motley Fool CAPS and Yahoo Finance on July 17, 2008.

"AMD could do well if they would put as much energy into promoting their own product as they seem to be in trying to attack Intel," says CAPS bear micsteel.

All-star player 2XHelix fires back with this bullish salvo:

The tide is turning for AMD. The odds look good they will have upside potential resulting from the FTC's 'anti-competition' investigation. Also, their Puma processor release for low priced notebooks is timely. The $US decline will mean more worldwide PC sales.

What management does:
The price war is over, and AMD can breathe again. Revenue growth is picking up speed, along with widening gross margins, and the upcoming back-to-school season could fuel a return to net profitability. Just don't expect management to squeeze that much blood from a money-losing stone quite yet.

Margins	12/2006	3/2007	6/2007	9/2007	12/2007	3/2008
Gross	50.5%	43.7%	38.4%	36.2%	37.6%	40.5%
Operating	8.2%	(5.2%)	(14.6%)	(19.7%)	(20.4%)	(15.9%)
Net	(2.9%)	(17.3%)	(28.9%)	(36.3%)	(56.2%)	(49.7%)
FCF/Revenue	(10.1%)	(24.8%)	(38.2%)	(36.3%)	(33.2%)	(28.0%)

Y-O-Y Growth	12/2006	3/2007	6/2007	9/2007	12/2007	3/2008
Revenue	(3.4%)	(6.8%)	(3.3%)	5.3%	6.4%	13.2%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Intel just showed us impressive demand for notebook chips -- and AMD's Puma platform got a head start on Intel's Centrino 2. That combination could add up to strong sales for the underdog this time, and it's a harbinger of even better news once this year's college freshmen gear up for campus life.

On top of that, AMD is getting close to launching its "Shanghai" processor in the server and desktop markets, with more on-chip cache memory and a power-saving 45-nanometer manufacturing process. After that, the ATI acquisition will bear fruit with integrated processor-and-graphics products. Oh, and there's the antitrust lawsuit against Intel, too. Final court decisions are still years away -- the trial doesn't even start until February 2010 -- but a decision in AMD's favor would bring a serious payday and change the business climate significantly.

To everything (turn, turn turn) there is a season (turn, turn, turn), and the time for AMD is coming soon. Not right now, though, so the shares will stay insanely cheap for another couple of months, maybe even quarters.