Stock of the Day
|
Advanced Micro Devices (AMD)
Investors Cheer AMD's Plan to Slash Spending
Instead of admitting defeat when the going gets rough, AMD has decided that now is the right time to start a new approach in the fight against Intel (INTC: Charts, News, Offers) for market share. The second-largest supplier of computer processors, behind rival Intel, has announced big cuts in spending over the coming months after declaring quarterly revenue that came in far below analysts' expectations. Reducing spending may help the cause, but it might not win the war. What is AMD's new strategy and how will investors react to their changes?
|
| Daily Chart |
If you are not able to see the chart, your email client probably does not support javascript. To view it, please click here
|
| Stock Analysis |
AMD warned investors on Monday that its revenue for the previous quarter would be falling below analysts' expectations by nearly 20 percent. Wall Street had forecasted first-quarter revenues to be around $1.54 billion, but AMD has said that they expect revenues to be closer to $1.23 billion. Why the discrepancy? AMD attributes lower prices and sales volumes, especially among resellers and small, independent PC makers, as the main factors in the quarter's shortcomings. The competition from rival Intel has escalated over the past months as both companies have been forced to reduce prices across their product spectrum. As a result, AMD may be facing a cash crunch as it adds restructuring to its agenda.
|
Accompanying the announcement that revenues would be lower than anticipated was news of a plan to turn things around. AMD has vowed to cut capital spending for the year by one-fifth, from $2.5 billion to $2 billion. Company officials said the reductions would not negatively impact the plans to increase capacity, which was allocated $2.5 billion earlier this year. Tighter budgeting would instead come from reductions in discretionary spending as well as limiting hiring to critical positions. These tactics seem nominal compared to the massive layoffs that might be expected in the company's situation, especially since this is the second consecutive quarter that AMD has shown signs of struggle. Investors, however, were encouraged by the news and sent prices up almost 4 percent.
|
As the change in strategy to focus on cutting spending has analysts believing that AMD has decided to shift away from the market share battle and center its attention on profit growth in the coming months instead, AMD may have other plans in the works. The Sunnyvale, California-based company was able to gain a 25 percent market share for x86 microprocessors in the last quarter of 2006, and it believes a 30 percent share is not too lofty a goal. Though few details have been provided, a new line of computer chips with the code name “Barcelona” may help make that dream a reality. The four-core chip is expected to give AMD an edge on Intel technically speaking, though actual marketplace success may be easier said than done. AMD will release the actual results of the first quarter on April 19 along with further details of the restructuring.
|
Profile |
The Company's principal activity is to design, manufacture and market industry-standard semiconductor products. The Company operates through three business segments. The Computation Products segment includes microprocessor products for desktop and mobile PCs, servers and workstations and chipset products. The Memory Products segment includes Flash memory products. The Other segment includes Personal Connectivity Solutions products. The products are sold through third-party distributors and independent representatives in both domestic and international markets. The trademarks of the Company include AMD, Advanced Micro Devices, AMD Athlon, AMD and Duron. The Company has manufacturing facilities in the United States, Germany, Japan, Malaysia, Thailand, Singapore and China and the sales subsidiaries are located in Europe, Asia and Latin America.
|
|
|
|
|
