Shares of Advanced Micro Devices (AMD 2.37%) hit a 52-week low on Friday. Let's look at how it got here and whether investors can hope for a rebound.
How it got here
The big news on Friday that triggered a relentless 14% sell-off was that AMD announced preliminary third-quarter estimates and the figures were not pretty. Revenue should fall 10% sequentially, far worse than the 1% decline that AMD had previously predicted. The chip maker cited "weaker than expected demand across all product lines" tied to tough macro conditions.
Gross margin is also expected to be just 31%, significantly below its previous forecast of 44%. This drop is blamed on inventory writedowns of $100 million due to weak demand and falling average selling prices. It's not surprising in the context of global PC shipments in the third quarter falling 8.3%.
Making things worse, reports surfaced that AMD was preparing to announce a massive round of layoffs that could reach as high as 20% to 30% of its total employee head count. The reductions will hit engineering and sales departments first, and could affect the company's product line. This follows another 10% workforce reduction that took place less than a year ago.
How it compares
Let's see how AMD compares with its two largest rivals in both PC processors and graphics processors.
We can include some fundamentals for a deeper read.
|
Company |
P/S (TTM) |
Sales Growth (TTM) |
Net Margin (TTM) |
Return on Equity (TTM) |
|---|---|---|---|---|
|
AMD |
0.35 |
(1.2%) |
(9.9%) |
(45.6%) |
|
Intel (INTC -9.20%) |
2 |
12.6% |
22.7% |
25.4% |
|
NVIDIA (NVDA 6.18%) |
2 |
7.5% |
11.9% |
11.6% |
Source: Reuters. TTM = trailing 12 months.
Not even Intel is immune from the PC slowdown, as the chip giant similarly cut its own guidance a month ago to the point where putting up revenue growth this year will be just out of reach. AMD lost both a gaming graphics exec and a GPU spot in Apple's newest MacBook Pros over the summer to NVIDIA, so its graphics business could be under pressure as well.
What's next?
There don't appear to be any positive developments for investors to look forward to in AMD's immediate future. Its chips will inevitably be featured in some Microsoft (MSFT 1.82%) Windows 8 tablets, but that's the same second fiddle it's played to Intel for decades, so I'd hardly consider that a game-changer. Investors probably have more pain in store.
