Advanced Micro Devices (NYSE:AMD) is probably one of the biggest losers in the semiconductor market. The stock has lost about 68% of its market cap in the last twelve months. It finally stabilized around $2.5, its year to date return is only 5%.
The losing streak on the trading floor is reflective of the company's poor financials and disappointing sales performances. Its market share in the PC market significantly dropped in recent years. The company is further challenged by declining PC demand worldwide. Unless AMD comes up with some plans to renovate itself, the company may soon face the end of the road.
However, that is not likely to happen in the future. AMD has tied up with several companies for its microchips and processors. This guarantees a steady stream of income in the next couple of years. Furthermore, its management is working hard for a complete turnaround just like Apple (NASDAQ:AAPL) and IBM (NYSE:IBM) did in the past.
Apple's introduction of iMac way back in 1998 sparked the rise of the technology giant today. IBM, on the other hand, made a major turnaround when it installed Lou Gerstner as CEO. Mr. Gerstner also served as Chairman of the Board from April 1993 to 2002. The firm was in deep financial trouble in the early nineties. But Lou Gerstner changed IBM for the best, and it never turned its back since then.
Roy Taylor, head of global channel sales and corporate vice president of AMD, expresses the same optimism of Apple and IBM. He expects AMD to follow the same path. AMD has already created a reputation of exemplary quality and breakthrough innovations in its products. The AMD Radeon graphics processor is widely used in millions of computers and laptops today. It will still be used in many computers and game consoles in the upcoming years.
Just recently, AMD was ranked No.79 in Corporate Responsibility (CR) Magazine's 100 best corporate citizens 2013. The listing evaluates companies based on 7 parameters. These parameters are environment, human rights, climate change, corporate governance, philanthropy, and financial.
Moreover, AMD has secured contracts with Nintendo (OTCPK:NTDOY) and Sony (NYSE:SNE). Sony is poised to release the PlayStation 4 (PS4) within a year. The next generation PS4 will be powered by AMD's semi-custom accelerated processing unit (APU). Aside from that, Microsoft (NASDAQ:MSFT) will also launch a new generation Xbox 720. This will be also likely be powered again by AMD.
Although there is no formal announcement yet until mid-May, Xbox 720 will operate under AMD's Jaguar's 8-core CPU. Its graphics will be powered by AMD Radeon as well. These contracts with Sony and Nintendo will surely lift the financial position of the company.
Nintendo, on the other hand, has recently launched the WII U in November 2012. The graphics processor of WII U is powered by AMD. While sales of WII U fell below expectations, the gamepad will still generate millions of sales worldwide for this year. This will add to the revenue of AMD. Success with Nintendo to increase its WII U sales will also mean more sales for AMD without incurring marketing costs.
Beyond Personal Computers
AMD's core products heavily rely on the PC market condition. The rising popularity of tablet computers has caused a notable decline in demand for personal computers. To break its dependence on the PC market, AMD has to expand its coverage towards tablet computers. That is just what the company is doing right now.
AMD has developed a TurboDock technology that automatically switches power according to the user's usage. This technology is used in AMD's Jaguar Kabini/Temash APUs. This came to light during Mobile World Congress and it made good impressions among the participants. This is foreseen as a new trend in mobile computing that combines the usage-preference of tablet users and computer users. The future success of this technology will hopefully fuel AMD's success.
Stock Market Performance and Outlook
There is a lot of enthusiasm for AMD with regard to its innovation in products and in technology. However, investors don't seem to share the same optimism. The share price of AMD still remains sluggish. Although the stock returned about 5% in this year, it is far from the level it was trading a year ago.
The disappointing figures in the balance sheets and in the income statement are pulling the prices down. AMD has declining total revenues amid increasing cost of sales. AMD suffered a net loss of $1.183 billion in 2012 coming from net income of $491 million in 2011. While total liabilities have declined from $1.774 billion in 2011 to only $1.397 billion in 2012, cash flow also declined.
Despite the poor financials, there is still hope for AMD. It can survive the financial turmoil it is facing right now. AMD powers several data centers serving billions of Internet pages today. More than 200 million global gaming consoles are powered by the technology AMD built.
The brand further revolutionized combined mobile computing and tablet usage through its TurboDock technology in the Jaguar multiple core processor. Above all, AMD will power the upcoming releases of the new generation Microsoft Xbox 720 and Sony PS4.
Given this information, there is no reason to panic and sell AMD. I recommend a hold and wait strategy to see where the stock is heading. Analysts in Yahoo share the same sentiment, voting for hold with none voting to sell. Likewise, the consensus of the analyst firms in Nasdaq recommended for hold. Some firms recommended strong buy, but one voted to sell.
At present, AMD owns more than 4,650 patents. Based on AMD's company information, 9 out of the 10 biggest PC providers in the world rely on the innovative works of AMD. With AMD's recent technological innovations, there are several reasons to be optimistic. I think AMD can make a major turnaround just like Apple and IBM did in the past.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: Efsinvestment is a team of analysts. This article was written by one of our equity analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.