Advanced Micro Devices (AMD) shares are taking yet another battering today in the wake of a fairly ugly Q2 earnings report. (see call transcript). While the Street appears generally supportive of the company’s decision to install Dirk Meyer as CEO to replace Hector Ruiz, and they apparently think the company is making a smart move in its decision to find buyers for its handheld and digital-TV chip segments, many analysts are skeptical that the company has easy fixes for its weak balance sheet and sliding market share. While a heroic few think the stock could be an appealing turnaround story, the consensus runs the other way: and in fact, would advise you to run the other way if you were considering jumping into the stock given today’s sell off.
- Goldman’s Jim Covello repeated his Sell rating and $3.50 price target on the stock. He is skeptical that AMD can meet its goal of hitting operating break-even in the second half. He notes that the company burned over $600 million in cash in the first half alone, and contends it will have to raise equity capital in the next few quarters, “which would be extremely dilutive.” He says the “cryptic” asset-light strategy the company continues to promise would actually be a negative for the business, “given the difficulties of optimizing design and manufacturing while working with several foundry partners.” And he notes that “AMD’s market share continues to deteriorate and it is having a difficult time closing the competitive gap” with Intel (INTC).
- J.P. Morgan’s Christopher Danely sounds a similar theme, asserting that “it will be difficult for AMD to make money unless it can gain back some market share and improving its pricing.” He stays Neutral on the stock.
- Bank of America’s Sumit Dhanda is a skeptic as well. “The path towards profitability is challenged, now that AMD is fighting multiple battles at the same time, including an aggressive competitive environment in graphics, lack of technology/cost leadership in client/server CPUs against Intel’s 45 nm products [and] share loss in notebooks,” and he says that “the potential encroachment of Atom into AMD’s turf [in] low end desktops and notebooks is likely to make matters even worse for AMD.” Adds Dhanda: “Meyer has his work cut out for him.”
- Citigroup’s Glen Yeung is another skeptic on the company’s break-even expectations; in his note this morning he pointed out that he isn’t modeling AMD reaching operating profitability in Q3, or Q4, or even Q1 of next year. He maintains a Hold rating, and cut his target to $6, from $7.50.
- Oppenheimer’s John Lau cut his target on the stock to $6 from $7. “AMD’s delayed product launches, vulnerable competitive position and low operating cash compel us to stay cautious,” he writes. “The difficult transition to 45-nanometer geometry and large net debt position compel us to maintains our Hold rating.”
There are a few lonely bulls left on the stock. Stifel Nicolaus analyst Cody Acree, for instance, says that “the bulk of the situation is the result of prior mistakes that are well on the road to being corrected.” And JMP Securities’ Krishna Shankar keeps an Outperform rating on the stock, which he calls “a value idea with positive catalysts,” like new products, the new CEO and a significant restructuring. But no one is listening to the bulls today.