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Advanced Micro Devices (AMD)
AMD Stock Tumbles on Analyst Concerns
Shares of Advanced Micro Devices and competitor Intel (INTC: Charts, News, Offers) were both down Thursday morning after a Citigroup analyst lowered estimates for both companies. The analyst cited concerns about the demand for PCs, as well as the impact of Intel's upcoming price cuts in July. While much of the stock market was red Thursday morning, AMD was one of the hardest hit companies, falling over 5 percent. Recently, AMD has been able to gain market share against archrival Intel, but do these new developments suggest a change in that trend?
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The Citigroup analyst, Glen Yeung, said, "We are reducing our estimates for AMD and Intel, reflecting our concerns about the second-quarter microprocessor pricing/unit environment." Yeung's report also stated, "Data points indicating a below seasonal 2Q06 PC environment are plentiful, creating a difficult unit backdrop for microprocessor companies; this is largely factored into estimates." Citigroup maintained Intel's price target at $21, while dropping AMD's target to $33 from $42. UBS Investment Research also cut their price target for AMD to $33, although their initial target was $39, and their reasons were more along the lines of concerns about cash flow problems as well as what direction the company is heading in.
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As far as AMD goes, the main concern is that the company simply isn't ready to go to a price war with Intel. Intel's price cuts, which are expected to occur in late July, are expected to hurt AMD while helping Intel get rid of their excess inventory. As Yeung put it, "We see little respite on the pricing front for AMD." This doesn't bode well for AMD, who was already the underdog in the competition. Last year, AMD has 1.7% of the global market share for microprocessors, while Intel had 14.7%. While Intel's upcoming price cuts for their Pentium D and Celeron chips pose a problem for AMD in the near future, Intel is also planning two release two new chips in 2008, which could complicate AMD's long term outlook as well.
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Advanced Micro Devices was helped last month by the news that Dell, which previously only used Intel chips in their PCs, would start also using AMD chips in their computers. While news like that benefits AMD's market share, ultimately, there are still a significant number of concerns that are threatening the company's outlook and causing analysts and investors to treat the company more cautiously. UBS analyst, Thomas Thornhill, said, "To deliver competitive platform features, we believe AMD would benefit most by utilizing a joint venture or shared R&D structure." Whether AMD will implement changes of that nature remains to be seen, although it certainly looks like they'll have to make some significant change to adjust to the market conditions, compete effectively, and restore analysts' confidence.
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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.
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