Advanced Micro Devices, Inc.
) slashed its revenue guidance for the second quarter of 2012.
The chip maker now expects sales to decrease 11% sequentially
versus its previous forecast of a 3% increase (+/- 3%). However,
the company reiterated its gross margin guidance of flat to
slightly up from the previous quarter.
We believe that management's previous guidance was based on the
strong product cycle (Trinity, Brazos2.0, 28nm GPU) and steady
progress on 32nm yields. But demand appears to be weaker than
expected due to softness in China, uncertainty in Europe as well as
lingering weakness in the U.S. personal computer market.
Competition has also increased, with price cuts in the PC
business because of the growing popularity of
) iPad and other tablets. Additionally, Advanced Micro faces
growing competition from
IvyBridge, as well as its growing capacity and lead at 22nm.
Advanced Micro is the second largest producer of
microprocessors, GPUs and chipsets in the world. The company
reported revenues of $1.59 billion in the first quarter, down 6.3%
sequentially and 1.7% year over year. However, earnings of 17 cents
a share were well ahead of the Zacks Consensus Estimate of 9 cents.
The company's compelling product line-up, new products (Brazos,
Llano and Bulldozer), growing position in graphics and cost
efficiencies should drive improved results going forward.
The company is expected to report second quarter results on July
19. We believe that the company will face increased competition
this year when
begins selling a new version of its operating system aimed at
tablets and other mobile devices that will work on processors from
However, we believe that most of AMD's business is in chips for
PCs that don't have a meaningful presence in smartphones and
tablets. In order to deal with Intel and NVIDIA, Advanced Micro
also needs to enter into these emerging markets.
Advanced Micro shares currently carry a Zacks Rank of #3,
implying a Hold recommendation in the short term (1-3 months).
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