Advanced Micro Devices' Latest Warning Confirms Long-Term Demise

| About: Advanced Micro (AMD)

Shares of Advanced Micro Devices, Inc. (NYSE:AMD) tumbled over 11% in Tuesday's trading session after the semiconductor company warned about its second quarter results.

Profit Warning

Weak consumer sales and a global economic slowdown are impacting Advanced Micro Devices' second-quarter prospects. Advanced Micro Devices now anticipates an 11% sequential decline in sales for the second quarter of 2012, while previously the company expected sequential revenue growth between plus 3% and minus 3%. Based on first-quarter revenues of $1.59 billion, second-quarter revenues are expected to come in around $1.42 billion, which is far below analysts' consensus of $1.63 billion.

Weak channel sales in China and Europe are impacting the prospects of the business. A weaker consumer sentiment impacted the company's original equipment manufacturer business as well. Shares of Advanced Micro Devices fell 11% in today's session, closing around the $5 mark, their lowest since January this year.


Wall Street analysts quickly revised their forecasts for the remainder of the year. On average, analysts now expect annual revenues of $6.26 billion versus an earlier forecast of $6.81 billion. Earnings per share for the full year of 2012 are expected to come in at $0.54 versus an earlier estimate of $0.73. In comparison, for the full year of 2011, Advanced Micro Devices earned $0.67 per share on revenues of $6.57 billion.

Sector Under Pressure, But ASML Holding Is A Bright Point

The warning by Advanced Micro Devices put pressure on the entire semiconductor sector on Tuesday. Nvidia Corporation (NASDAQ:NVDA) fell 3.0%, Freescale Semiconductor Inc. (NYSE:FSL) fell 3.8% and ARM Holdings, plc (NASDAQ:ARMH) fell 3.8% as well.

Market leader Intel Corporation (NASDAQ:INTC) fell just 2.3% as analysts noted that Advanced Micro Devices' problems might be partially attributable to the company and not just to the wider economic environment. Furthermore, Intel announced that it would invest a total of $4 billion into Dutch lithography company ASML Holding N.V. (NASDAQ:ASML), which shares rose more than 8.5% today. The company will make a $3.1 billion equity investment in two stages which would give it a 15% ownership stake in the company. Furthermore, Intel will invest another $1 billion in research and development in ASML's business in an attempt to stay at the forefront of technological developments.

Long-Term Demise

Shares of Advanced Micro Devices have a terrible long-term track record in creating shareholder value. The company's battle with the much larger and stronger competitor Intel results in dismal profitability and growth. Shares have roughly halved over the past decade, and have fallen almost 90% from their peak of around $40 per share, set early in 2006. Additionally, shareholders have seen 25% dilution over the last four years as the company continued to issue more shares.

Over the years, the market capitalization of Advanced Micro Devices has shrunk to a mere $3.5 billion, compared to $130 billion for Intel. While years ago media were predicting a "war" between Advanced Micro Devices and Intel, it has really become a battle between "David and Goliath".

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.