Advanced Micro Devices: a Strong Buy

Advanced Micro Devices (AMD) announced second quarter ended June 30, 2016 total revenue of $1.03 billion, up 23 percent sequentially from $832 million in first quarter of 2016 and an increase of 9 percent year-over-year from $942 million in second quarter of 2015. Going forward, the company estimates third quarter of 2016 revenue to grow in the range of 15 percent to 21 percent.

Getting better

Advanced Micro Devices declared second quarter of 2016 net income of $69 million or $0.08 per diluted share compared to a net loss of $109 million or $0.14 of loss per diluted share in the sequential first quarter of 2016 and a net loss of $181 million or $0.23 of loss per diluted share in second quarter of 2015.

The key computer graphics technology company reported continued sequential and year-over-year growths in both its top and bottom lines primarily driven by improvement across semi-custom SOCs somewhat offset by greater marketing investment related expenditures.

Advanced Micro Devices is consistently delivering significantly growing financial positions with healthy sequential and year-over-year growths in both its top and bottom lines mainly driven by superior operational execution and attractive management of balance sheet being undertaken by the company.

Fiscal year 2016 till date has illustrated an inflection situation in the company’s overall financial performance with revenue growing in low single digits, cash and cash equivalents remaining steady year-over-year in the range of approximately $600 million to nearly $1 billion, adjusted operational expenditure remaining constant year-over-year in the range of about $330 million to nearly $350 million per quarter, impressive reduction in capital spending by approximately $80 million with superior positive free cash flows.

The industry-leading financial performance of Advanced Micro Devices is believed to continue to encourage the company to make attractive and high-value delivering investments in development of advanced graphics cards while offering lucrative shareholder returns.

Positives to consider

Advanced Micro Devices is expected to have no near-term debt maturities till March 2019 with the term debt having weighted average interest rate of 7.2% till June 25, 2016.
Advanced Micro Devices: a Strong Buy
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The company’s net ABL borrowings during second quarter of 2016 of $226 million remained flat sequentially which highlights continued commitment of the graphics major on sustaining healthy a cash position with minimized debt.

The global computer graphics company has set several long-term financial goals including gross margin in the range of about 36% to 40% that is expected to be achieved from impressive growths across Pro Graphics, Embedded and Server segments, operating expenditure-to-revenue ratio in the range of approximately 26% to 30% allowed by superior control of SG&A expense and attractive fund product plans, operating margin of over 10% driven by semi-custom enhancement and margin rich businesses.

It is delivering over $0.50 of earnings per share through keen focus on delivering solid market share expansion and finally, delivering impressive free cash flows close to the net income and driven by operating expenditure leverage coupled with enhancement of operational margin.

The ongoing solid efforts of Advanced Micro Devices on sustaining healthy cash position while minimizing total debt over the longer term is expected to uniquely position the company to deliver sustainable long-term growth while offering attractive shareholder returns in form of dividends and strategic share repurchases.

During 2017 and 2018, Advanced Micro Devices targets on introducing advanced processor and graphics products, gaining impressive infrastructure or server market share, improve PC or graphics share advancement, attractive margin growth and steady generation of cash flows with industry-leading profitability which is in line with the company’s multi-year strategic growth plan.


Overall, the investors are advised to “Hold” their position in Advanced Micro Devices, Inc. considering the company’s significant long-term growth prospects but currently, weaker financial position with notable total debt of $2.24 billion against smaller total cash position of $957 million only, restricting the company to make future growth investments. The profit margin of -8.74% appears disappointing and signifies no profit but loss. The PEG ratio of -0.72 appears misguiding and signifies no growth but decline.
Published on Aug 30, 2016
By Yaggyaseni Mittra

Copyrighted 2020. Content published with author's permission.

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