Semiconductor underdog Advanced Micro Devices (NYSE:AMD) will report fourth-quarter earnings on Thursday night. The last few quarters have been disastrous, and AMD's share price has shrunk to microscopic levels. Is this where the proverbial rubber hits the road, or will long-suffering investors continue to suffer? Let's have a little chat about all of that.

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)

$73.42

14.3

****

Texas Instruments (NYSE:TXN)

$19.2

7.8

****

NVIDIA (NASDAQ:NVDA)

$4.0

11.9

****

Sun Microsystems (NASDAQ:JAVA)

$2.73

N/A

**

AMD

$1.26

N/A

**

Data taken from Motley Fool CAPS on 01/20/2009. Financial data courtesy of Yahoo! Finance.

CAPS member skymutt2 wrote the following in bearish volley in early December: "Burning thru cash, loads of debt, no end in sight for the losses." Ouch.

"This is a big one for a come back," says all-star member Vet67to82, who has an "outperform" rating on AMD. "Intel's only competition ... AND saving Intel from regulatory heat as a monopoly. Intel needs AMD to survive and prosper. ... Less price competition will be good for both companies bottom lines. Soooo, I'm looking for AMD to go from $2.00 to $10 to $20."

What management does
Small children and seniors with heart conditions shouldn't look too closely at the net income margin. It's scary stuff. But gross margins have come back to life despite the raging economic hurricane, and sales growth is healthy again. It ain't all bad news, amigo.

Margins

6/2007

9/2007

12/2007

3/2008

6/2008

9/2008

Gross

38.6%

36.4%

37.6%

40.2%

44.0%

46.7%

Operating

(12.8%)

(18.1%)

(20.4%)

(15.9%)

(11.6%)

(6.1%)

Net

(29.8%)

(37.4%)

(56.2%)

(49.3%)

(58.2%)

(52.2%)

FCF/Revenue

(39.4%)

(37.4%)

(33.2%)

(27.7%)

(16.6%)

(17.6%)

Growth (YOY)

6/2007

9/2007

12/2007

3/2008

6/2008

9/2008

Revenue

(6.3%)

2.3%

6.4%

16.4%

15.1%

14.3%

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
A fresh round of job cuts and salary reductions is bad tidings indeed, and we shouldn't expect this week's earnings report to impress anyone. Even mighty Intel is feeling the heat these days, putting a stop to a normally quite generous share buyback program in order to preserve cash.

So here's the good news: It won't get any worse. I think it's safe to assume that there won't be any expensive price wars this year, given Intel's cash-saving attitude. AMD's spin-out of its manufacturing operations should close in a matter of weeks, and the company's own balance sheet will breathe a lot easier after that. Saudi Arabian investors are picking up $1.2 billion of AMD's long-term debt and investing $3.6 billion directly into the as-yet unnamed foundry company. That's a healthy investment infusion into AMD's anemic arm, and it removes the burden of running an expensive high-tech semiconductor manufacturing operation.

The worst-case scenario I can think of is IBM (NYSE:IBM) swooping in like a masked raider to buy AMD wholesale for two or three times the current share price. Short of that, CAPS member Vet67to82's seemingly irrational exuberance seems spot-on to me. Let's just get over this last little bump in the road first.

Further Foolishness:

NVIDIA is a Motley Fool Stock Advisor pick. Intel is a Motley Fool Inside Value selection, and The Fool owns shares and covered calls of Intel. Try any of our Foolish newsletters today, free for 30 days. Or just sign up for a free CAPS account to find the identities of your fellow Fools who were quoted above. They might have more to tell you!

Fool contributor Anders Bylund owns a few AMD shares, but he holds no other position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure is the Punxsutawney Phil of financial forecasting.