Advanced Micro Devices (NYSE: AMD) answered many critics last night by reporting very strong earnings. Sales were flat from the previous quarter, as already reported, but $0.14 of non-GAAP earnings per share easily beat the $0.11 per-share consensus estimate. CFO and interim CEO Thomas Seifert credits the outperformance to strong sales of the new high-margin Fusion chips as well as rapid market adoption of the latest graphics refresh.

The numbers were fine, and the stock is moving up. That's great. But the report and the ensuing conference call were predictably light on what really matters -- strategy for the future.

Seifert disclosed a $12 million severance payment to former CEO Dirk Meyer, to be expensed in the ongoing first quarter of 2011. He thanked Meyer for putting AMD in the strong market position it holds today, noted that the search for a permanent CEO is under way, and said that "our products are aimed to some of the largest most established margin pools in the industry, and we have lots of headroom in which to grow."

Yes, exactly. Why go diving for thin-margin sales in tablets and maybe smartphones when there's lots of market share to steal from Intel (Nasdaq: INTC) in the more profitable server, desktop, and laptop markets? NVIDIA (Nasdaq: NVDA) is also still there to put up a fight in the increasingly profitable graphics market but might not stick around for too much longer.

The headroom is there, Meyer put AMD in a fine position to exploit the opportunity, and ... now the board is looking for someone else to take that next step. Except, they also want the replacement to look for more of that low-margin junk business. Fighting Intel and NVIDIA wasn't hard enough, so let's go challenge ARM Holdings (Nasdaq: ARMH) and MIPS Technologies (Nasdaq: MIPS) on their home turf, too! Yeah, right.

I don't get it, and I'm becoming increasingly uncomfortable with my real-money AMD position. The questions we need answered remain mysteries, and nobody is willing to explain how lower margins would translate into higher profits.

AMD is chasing the wrong targets and paying a high price to do it. This should still be a $10 stock by the summer given proper execution, but that's a big "if" at this point.

Add AMD to your watchlist to keep tabs on this nail-biter.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.