Advanced Micro Devices
"It's clearly more difficult for investors to initiate new short positions at current levels, and realistically, with GlobalFoundries off the books, it's tough to see AMD burning much cash over the next two years," analyst Daniel Berenbaum said in a note to clients.
The analyst said the clearest secular driver in large-cap semiconductors would be the shift of applications processing power into the data center.
"We see INTC's Nehalem product cycle as dominant -- our discussions with industry contacts lead us to conclude that data center builds are overwhelmingly using INTC-based servers. This will likely weigh on both revenue -- at the very least AMD is likely to underperform INTC over the next four quarters -- and profitability," analyst Berenbaum said.
The analyst noted that AMD's gross margins are likely to be under pressure despite the fact that AMD will benefit from generous wafer pricing from its manufacturing partner GlobalFoundries from the second quarter of 2011.
The analyst said his checks suggest that Intel is now lowering pricing in CPUs; NVIDIA is doing the same for its graphic chips, and AMD will likely be forced to match, with a deleterious effect on both revenue and margins.
"For now, our model suggests that the tough product environment will outweigh the eventual manufacturing benefit," analyst Berenbaum said, adding that he expects the company's gross margin to decline to 41 percent in the first quarter of 2011.
Profit View Cut
The analyst, who has a "sell" rating on AMD stock, also cut his third-quarter views on the company to pro-forma earnings of 8 cents a share on revenue of $1.65 billion, from pro-forma earnings of 15 cents a share on revenue of $1.7 billion. Wall Street expects AMD to earn 14 cents a share on revenue of $1.76 billion for the third quarter.
For 2010, Berenbaum reduced his forecast to pro-forma earnings of 29 cents a share on revenue of $6.6 billion, from pro-forma earnings of 49 cents a share on revenue of $6.8 billion. Analysts expect AMD to earn 52 cents a share on revenue of $6.79 billion for the full year.
Shares of AMD closed Monday's trading at $6.18 on the NYSE.
International Business Times, The Global Business News Leader
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