Advanced Micro Devices, Inc.
) recently slashed its revenue and gross margin guidance for the
third quarter of 2012. Following the news, company shares fell
sharply by 9.06% to $2.91 in extended trading hours.
The chipmaker now expects sales to decrease 10% sequentially
versus its previous forecast of a 1% decrease (+/- 3%). The company
also lowered its gross margin guidance to 31%, lower than the
previous expectation of 44%. However, operating expenses are
expected to decline approximately 7% from the prior quarter, owing
to tight expense control measures.
Management said that the guidance cut was on account of
weaker-than-expected demand across all product lines due to a weak
global economy and lingering weakness in the U.S.personal computer
market stemming from the growing preference for tablets.
Advanced Micro also stated that lower-than-anticipated average
selling prices (ASPs) for the company's Computing Solutions Group
products and lower utilization of its back-end manufacturing
facilities have negatively impacted gross margins for the upcoming
Competition has also increased with price cuts in the PC
business owing to the growing popularity of
) iPad and other tablets. Additionally, Advanced Micro faces
growing competition from
) new product line up, as well as its growing capacity and lead at
Until earlier this week, most of AMD's chips were used in PCs
but recently AMDhas entered the tablet market with its new dual
core Z-60 microprocessor, known as an APU. The Z-60 will compete
with ARM-based microprocessors from
) among others.
Though we remain encouraged by the company's efforts to protect
against market share loss, AMD's strategy for the smartphone and
tablet markets remains unclear as of now. We believe that the
company will be able to deal with rivals Intel and
) more effectively when it has built a presence in these
Advanced Micro is the second largest producer of
microprocessors, GPUs and chipsets in the world. The company
reported revenues of $1.41 billion in the second quarter, down
10.9% sequentially and 10.2% year over year.
Earnings of 6 cents a share also missed the Zacks Consensus
Estimate by a penny. However, the company's compelling product
line-up, new products (Brazos, Llano and Bulldozer), its growing
position in graphics and cost efficiencies should drive better
results going forward.
This marks yet another guidance reduction in the semiconductor
industry. Recently, chipmaker Intel slashed its sales forecast for
the third quarter due to weak demand in the enterprise PC segment
and a challenging global economy. Intel's shares fell 3.61% to
$24.19 following the guidance revision. Advanced Micro is expected
to report third quarter results on October 18.
Advanced Micro shares currently carry a Zacks #4 Rank, implying
a Sell rating in the short term (1-3 months).
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