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The woes of the PC industry are no secret. The growth in smartphone industry has affected the PC in ways that were unprecedented. PC manufacturers have suffered from the slump in PC demand, but this effect is not limited to OEMs only: PC semiconductor companies have also been severely impacted. Advanced Micro Devices (NYSE:AMD) and Intel (NASDAQ:INTC) are among the semiconductor firms which have faced declining margins and profits due to sluggish PC demand. On the other hand, semiconductors with a focus on handheld devices have prospered.

As the chart below shows, AMD has been one of the worst affected stocks. The stock has moved from $8.2 in March to $2.26, losing approximately 75% of its value in a matter of months. However as my analysis below shows, AMD has bottomed out. At these price levels, the company has 80% of its market cap as cash, therefore I believe AMD is ready to be short squeezed.

AMD Chart

AMD data by YCharts

As the table below shows, the company has suffered in both Computing Solutions and Graphics segments. The percentage contribution of each segment however has remained relatively similar. The operating margins and gross margins have also remained similar over the last 6 quarters.

F1Q11

F2Q11

F3Q11

F4Q11

F1Q12

F2Q12

Computing Solutions

1200

1207

1286

1309

1203

1046

% of Total

74%

77%

76%

77%

76%

74%

Graphics

413

367

403

382

382

367

% of Total

26%

23%

24%

23%

24%

26%

Gross Margins

45%

46%

45%

46%

46%

45%

Operating Margins

6%

7%

9%

10%

9%

5%

Source: Company Disclosures

EPS has fallen consistantly in the last couple years, which has been one of the major factors behind weak valuations. The graph below shows the consistent demise of AMD's EPS. AMD EPS Basic Quarterly Chart

AMD EPS Basic Quarterly data by YCharts

Valuations

Despite the depressing EPS, the company has been able to maintain a solid cash balance. As of last quarter AMD had approximately $1.3 billion in Cash and Cash Equivalents. The company has $0.71 billion shares outstanding, which comes down to a cash per share amount of $1.83. The stock is currently trading at $2.29; therefore AMD has approximately 80% of its market cap as cash alone. The mean target price for AMD is $2.90, which is 26% higher than the current price level of $2.30.

Conclusion

The problems of PC industry or AMD are not over, but I believe AMD has bottomed out. With approximately 80% market cap as cash and mean estimates giving 26% upside, I believe AMD is ready to be short squeezed. There were 154 million shares short as of Nov 15, which is approximately 28% of the total float. The short ratio of 4.85 suggests that it will almost 5 days for the investors to cover their short position.

Source: AMD Has Bottomed Out