On Tuesday night, Advanced Micro Devices (NYSE:AMD) reports earnings for the full year and fourth quarter of fiscal 2006. Let's see what's up with the little chipmaker that could.

What analysts say:

  • Buy, sell, or waffle? Wall Street has assigned a hefty squad of analysts to AMD. Out of 35 firms covering the company, eight want to buy and eight want to sell. The other 19 are simply holding. In our Motley Fool CAPS community, it's a two-star stock with more than 950 player ratings.
  • Revenues. Two weeks ago, management said that it expects a 3% sequential sales boost, which would mean about $1.37 billion. For whatever reason, the analyst consensus remains much higher, at $1.73 billion, though that's still down from the year-ago figure of $1.84 billion.
  • Earnings. The analysts did lower their earnings forecasts from $0.24 to $0.10 per share, though. Last year, AMD brought in $0.45 per share in the fourth quarter.

What management says:
The updated guidance statement said that "fourth-quarter gross margin and operating income were impacted by significantly lower microprocessor average selling prices, which largely offset a significant increase in unit sales." Translation: the price war with Intel (NASDAQ:INTC) is still going on, and it hurts.

What management does:
These margin trends don't look like the results of a company locked in a price war, but such is the magic of rolling 12-month periods. AMD is coming up on tougher yearly comparisons now, as margins and returns peaked last spring. In other words, expect most of these measures to drop a bit.

Even at diminished sequential levels, though, AMD is living the high life, historically speaking. For example, return on equity was a negative 43.3% in 2002, with steady improvement every year thereafter, and it won't take much of a profit to beat last year's 5.2%, too.

Margins %

6/2005

10/2005

12/2005

3/2006

7/2006

10/2006

Gross

38.8%

39.1%

40.9%

46.2%

49.9%

52.7%

Oper.

0.8%

0.9%

4.3%

9.3%

11.3%

12.5%

Net

0.2%

0.8%

2.8%

6.2%

7.5%

8.8%

FCF/Revenue

56.9%

56.2%

51.2%

52.1%

54.3%

53.8%


Efficiency Ratios

6/2005

10/2005

12/2005

3/2006

7/2006

10/2006

ROC

0.4%

0.5%

2.9%

6.2%

7.3%

7.6%

ROA

0.3%

0.4%

2.1%

4.3%

5.3%

5.4%

ROE

0.3%

1.4%

5.2%

9.6%

11.6%

12.6%
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:
As an AMD shareholder, the price war concerns me, but I'm not ready to panic. I see a great deal of promise in the ATI acquisition, and I am confident that AMD will continue to take the performance and feature lead from Intel every now and then. It's a see-saw battle with no end in sight, and it's driving both companies to run tighter operations and innovate, innovate, innovate. To me, AMD looks a lot like Kimberly-Clark (NYSE:KMB) taking on the acknowledged excellence of Procter & Gamble (NYSE:PG) head-on, knowing that the competition would spur the entire company to achieve greatness. Take on the best, and beat them at their own game. It's not going to be easy, and sometimes it hurts, but it's for the best in the long run.

So bring on some more short-term pain tomorrow -- it's what we all expect. This Fool thinks AMD will come up aces in the end -- just like Kimberly-Clark.

Competitors:

  • Intel
  • Nvidia (NASDAQ:NVDA)
  • Broadcom (NASDAQ:BRCM)
  • QUALCOMM (NASDAQ:QCOM)

Intel is a Motley Fool Inside Value selection, and Nvidia is a Stock Advisor pick. Learn more with a free 30-day trial pass to either service.

Fool contributor Anders Bylund is an AMD shareholder but holds no other position in any of the companies discussed here. Foolish disclosure is always beating the best at their own game.