AMD Contends With Future RX 480 Sales

| About: Advanced Micro (AMD)

Summary

The stock is up over 80% this year.

The should be concern about the RX 480 sell through.

It is not clear where the stock should go from here.

I tend to avoid blogs about particularly computational technology and relevant stocks. Part of the reason is that processing power reached levels long ago at which most persons cannot use it and never actually do. Another is that the languishing personal computer industry is not a source of enthusiasm. Still, Advanced Micro Devices (NYSE:AMD) is interesting because it offers the only potential means of challenge to Intel (NASDAQ:INTC); and separately because its recently-launched RX 480 graphics processor (GPU), which it needs to be a success, has performance issues that are documented online in such a way as to offset corporate marketing efforts.

AMD's solvency might not be as much of a worry as in the past; though it still carries an enormous debt load that increased slightly to $2.012 billion this past quarter. Further, while the company's cash position is somewhat higher, its balance sheet shows a shareholder's deficit, and it just increased from $412 to $413 million. The company's fiscal situation is probable to extensively impede its efforts.

The stock gained nearly 82% so far this year, because of better prospects and a partnership to help keep the lights on. Investors must have felt that there was a chance of better long-term horizons. Prior to the earnings release, my own perception was that the RX 480 snafu was likely to weigh materially. AMD management just guided to further improvement; though with leeway for revenue of +/- 3%.

This brings us to the important GPU. Customers may not buy it. Here is commentary from the conference call transcript (I observed nothing in the Q&A section about it):

Our strong second quarter graphics performance was capped by the launch of our new Polaris-based RX 480 GPUs at the end of June, which helped contribute to our highest desktop channel GPU shipments since the fourth quarter of 2014.

So it appears that the new device contributed to results, helping the company's report. However, there is no indication that end customers have or will be purchasing the RX 480. There is probably going to be an inventory glut among retail distributors.

It is difficult to say what may happen in the following days. It seems that if an investor owns the stock, he or she is unlikely to sell it because of a solid report. However, while there could potentially be some analyst upgrades; if there is not new investment that occurs independently of sell side activity; issues including RX 480 channel stuffing and a constricting balance sheet might temper further upside.

AMD is continuing its efforts to enjoy future success. Still, the GPU snafu is not resolved. It is not clear what the stock should do next.

Disclosure: I am/we are short AMD.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I probably will modify my AMD position over the next 72 hours.