What: Shares of semiconductor designer Advanced Micro Devices (AMD +18.37%) fell as much as 18% on very heavy volume in the early Tuesday session. The company yesterday reduced its second-quarter guidance, one week before the final report. By 11:15 a.m., the stock was down 15.4%.
So what: In a guidance update published Monday night, AMD reduced its second-quarter revenue guidance from $1 billion to roughly $950 million. The gross margin outlook was also diminished from 32% to 28%, all due to unexpectedly slow orders from the PC systems sector.
Now what: AMD shares had already taken a recent haircut when fellow semiconductor veteran Micron Technology blamed a weak second quarter on PC-market troubles. The stock recovered nicely amid buyout speculation, but this late-hour guidance reduction took all the wind out of AMD's sails in short order. AMD shares hit multiyear lows in early Tuesday trading.
Investors are now looking back at a steep 50% price drop in AMD shares over the last year, and this PC market update doesn't indicate a quick end to the misery. Recently appointed CEO Lisa Su faces an incredibly difficult turnaround task here, and maybe even an impossible one.
Tune in to AMD's full earnings report on July 16 for a deeper dive into this troubled company's progress and prospects (or lack thereof). Until then, rest assured that PC vendors aren't building a ton of systems right now. Expect the back-to-school and holiday seasons to show lower PC sales than usual, with all that implies for component suppliers to that sector.
