AMD (AMD) Slides Over 10% After Slashing Third Quarter Estimates

Last Friday, chipmaker Advanced Micro Devices (AMD: Charts, News) set a sour tone for this week after warning that its third quarter revenue would miss estimates due to weak demand for personal computers. The Sunnyvale, California-based company's preliminary results show that its revenue slid 10% from the second quarter to $1.27 billion, missing its own prior forecast of $1.38 billion to $1.4 billion, which represents a range between a 3% decline to 1% growth.

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AMD is the second largest CPU manufacturer in the world, but trails market leader Intel by a wide margin with only 20% of the PC market. PC sales slid 8% during the quarter, as consumers turned their attention to smartphones and tablets running on Apple's (AAPL: Charts, News) iOS and Google's (GOOG: Charts, News) Android operating system. AMD's woes appear to be affecting Intel as well. Total shipments of PCs have also been forecast to decline for the first time since 2001. AMD also manufactures high-end video cards that compete with market leader Nvidia (NVDA: Charts, News). Mercury Research analyst Dean McCarron stated that the computer processor industry has declined to "one of the worst periods in the past two decades." McCarron also pointed out that processor sales have only declined this severely twice in the past two decades - in 2000, due to the dot-com bubble - and in 2008, in the aftermath of the financial meltdown. "The PC end market appears weakest due to soft global demand and share loss to tablets," commented JP Morgan analyst Christopher Danely. "Looking ahead to 4Q12, we do not expect Windows 8 to be a catalyst as new operating systems have not driven a major upgrade cycle since 1995." Danely's bearish comments contradict some analysts, who believe that the upcoming October 26 release of Windows 8 could boost new PC sales during the holiday season. Last month, Intel (INTC: Charts, News) also warned that its third quarter revenue would be lower than expected. Shares of AMD plunged over 10% to a three-year low on Friday. The stock has fallen 42% over the past twelve months and 79% over the past five years. AMD also expects its gross margin to contract to 31% during the quarter, worse than its previous forecast of 44%. The company attributed this margin contraction to weaker than expected demand for its products, which forced it to lower its prices to clear out its inventory. On the bright side, its third quarter operating expenses are forecast to decline approximately 7% due to tighter cost controls. AMD's full third quarter results are due on Thursday, October 18. Analysts have expressed concern about AMD's future since the resignation of CFO Thomas Seifert last month. Evercore Partners analyst Patrick Wang stated, "AMD's competitive position is so much weaker than in the past. When demand declines, AMD is the first to go." Shares of AMD have bounced in a wide 52-week range between $2.86 and $8.35. Unlike its rival Intel, AMD's stock does not pay a quarterly dividend. Other News About AMD AMD Shares Hit Multi-Year Low After Warning Shares of AMD plunge to fresh lows. AMD Becomes the Latest Chip to Fall Can Intel and AMD survive the brave new world of next-gen computing? Other Stocks in the News Oracle's Larry Ellison Eyes Fellow Billionaire's Anschutz Entertainment Group Empire Oracle's CEO looks to expand his empire. Wells Fargo Posts Record Profits of $4.94 Billion Wells Fargo posts strong profits despite legal pressure from the U.S. government. Copyright 2012 by, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA, Inc.) or its employees responsible.

Published on Oct 15, 2012
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

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