Tonight, upstart chip maker Advanced Micro Devices (NYSE:AMD) is reporting results for Q3 2006. This Fool is here to set the stage for you, and when you're done here, you can go back and look at the pros and cons of AMD from a recent Duel over the company.

What analysts say:

  • Buy, sell, or waffle? A whopping 32 Wall Street analysts provide coverage on AMD. Ten of them have marked the stock a buy, 21 prefer to hold, and one wants to sell. Our own crack team of gurus in the CAPS service has a somewhat similar division, with 39 all-stars on the bull side and 17 of their peers feeling bearish.
  • Revenues. $1.31 billion of revenues would satisfy the average analyst this time, down 14% from last year if that target holds still.
  • Earnings. The average analyst forecast calls for $0.24 of earnings per share, though there's a wide range of opinions from $0.13 all the way to $0.32. What's known is the year-ago report of $0.18 per share.

What management says:
AMD carries itself with a healthy dose of swagger these days, thanks to a series of victories in the marketplace. COO Dirk Meyer says that the "average selling price (ASP) has increased and we believe we continued to gain unit and dollar share, as the server market continues to embrace AMD solutions across a broader industry footprint." The goal is a 30% share of the server market by year's end, though the company is less aggressive in the desktop space and declines to give us any guidance there.

What management does:
There isn't much to complain about on this slate of results. Widening gross margins indicate good pricing power, despite the much-publicized price war with Intel (NASDAQ:INTC), and years of lean living have given management some good habits that allow this improvement to trickle down to the bottom line.

Margins %

3/05

6/05

9/05

12/05

3/06

7/06

Gross

38.5

38.8

39.1

40.9

46.2

49.9

Op.

2.4

0.8

0.9

4.3

9.3

11.3

Net

0.6

0.2

0.8

2.8

6.2

7.5

Return on Equity

1.1

0.3

1.4

5.2

9.6

11.6
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:
Last night, Intel said the price war might be over, because the larger rival has finished clearing out the backlog of older chips that had been clogging up warehouses because of the Core 2 Duo release. It can also be argued that the war hurt Intel worse than it did AMD, judging from their respective gross margins. That new chip put Intel back on top in the absolute performance battle, which is always good for marketing purposes but means little when it's time to convince corporate purchasers to select a server technology.

AMD is still in a very strong position in the corporate data center, and while that 30% goal might once have sounded audacious to a fault, it now looks rather realistic. And sneak a peek at those margin trends up there. It's hard to argue with the cold, hard numbers of great financial performances.

So there's a war, or there was. But AMD has its own personal bunker in the server space, and while gross margin growth may have slowed down a bit from the last quarter, I'd be shocked if margins turned downward now. And the ATI (NASDAQ:ATYT) acquisition is expected to close next week, but won't have any bearing on this particular earnings period. AMD is doing its thing, and doing it well.

Competitors:

  • Intel
  • Freescale Semiconductor (NYSE:FSL)
  • Hitachi (NYSE:HIT)
  • STMicroelectronics (NYSE:STM)
  • Atmel (NASDAQ:ATML)

Intel is one of Philip Durell's Inside Value picks. Sign up for a free 30-day trial to see what other great values Philip and his crack team have dug up for their subscribers.

Fool contributor Anders Bylund holds no position in any of the companies discussed here, but is writing this article on an AMD/ATI system. You can check out Anders' holdingsif you like, and Foolishdisclosureis always high-performance.