Hey you….yes, you! Would you like to buy Advanced Micro Devices (AMD)? It's a great buy. Just look what the company is doing. Wrestling with the decision to make some major cuts to its personnel and endeavoring to create some major restructuring. Its doing this with the purpose in mind to become competitive again. So who wants a company while it is journeying through a mess like this?
I only see one reason. If takeover rumors begin (and they do in seasons like this) the stock could jump on the rumor and it is very inexpensive right now.
Here is one argument. Qualcomm (QCOM) has always been interested in expanding into the server market. A few years back, AMD had an "Opteron Chip" that was competitive enough to gain Intel's attention. So AMD knows server chips. It would make sense for Qualcomm to be interested in snatching up AMD at a bargain price. But even this has complications. I recently read an article by Arik Hesseldahl explaining the complicated hassle of buying AMD. In it he explains that there is an intertwined agreement between AMD and Intel over cross-patent agreements and if a company was to agree to purchase AMD:
"The end result is that any company that reaches a deal in principle to buy AMD, will then have to turn right around and negotiate with Intel. And those negotiations could easily fail and send both parties to court."
So this may put a damper on any rumors that move the stock. There may be few suitors. So why buy the stock?
Market Watch reported that the company is getting ready to cut between (20% & 30%) of its workforce who includes engineers and sales staff.
It recently slashed its revenue and gross margin guidance for the third quarter of 2012. The chipmaker now expects sales to decrease 10% sequentially versus its previous forecast of a 1% decrease.
Standard & Poor's Rating Services is placing its ratings on the microprocessor company's BB- corporate credit rating on Credit-Watch "with negative implications."
I am of the opinion that there are better investments right now. That does not mean that some time in the future this company would not be a good buy. Just right now, I do not consider it a bargain even though the price is so low. No less than 9 analysts have reduced their price target for the company recently.
The average estimate of analysts is for profit of one cent per share, a decline of 93.3% from the company's actual earnings for the same quarter a year ago. During the past three months, the average estimate has moved down from 13 cents. Between one and three months ago, the average estimate moved down. It also has dropped from 2 cents during the last month. For the year, analysts are projecting net income of 24 cents per share, a decline of 52% from last year.
Since March of this year, AMD has been in a steep decline and it pushed through long term support of 4.3 back in July as it continues to drop. It recently took a huge hit in October with a large gap down. As it reaches the oversold arena we may see a natural push up. This has happened many times before. What will it take to turn this stock around? Or is it too late? I am not sure of this answer but I do believe the journey down is not over. If an investor is interested in a long term investment in this company I would suggest waiting a bit longer.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.