AMD Earnings Preview: What We're Watching on Thursday

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AMD ( AMD ) plans to report its Q2 2011 earnings Thursday following its much larger rival Intel ( INTC ) that reports Wednesday, and many believe that 2011 could stack up as the company's most profitable year since 2000. This implies that investors will looke for improved profits in Q2 vs. last year as well. We take this opportunity to look at some key areas that investors should watch out for given several significant developments that have taken place in first half of 2011. Our price estimate for AMD stands at $9.50 , implying a premium of about 45% to the market price.

Uncertainty Around Leadership

It seems that AMD still hasn't found a suitable leader to replace its previous CEO who was removed by the company's board earlier this year. We are aware that many investors are looking forward to some concrete information or indication regarding future leadership. This is partly the reason why AMD's stock has fallen significantly in the past 3-6 months. However, according to Bloomberg, AMD is still having difficult finding a new CEO, which has added fuel to short sellers.

How Server Business Would Have Grown?

It is critical for AMD to regain share in server microprocessor market where it holds a paltry 7% market share. The situation did not improve in Q1 2011, and it will be interesting to see if the company has made any progress on this front in Q2. Likely indicators would be revenue growth in servers coupled with ASP (average selling price) trend. Why is this critical?

First, the company's server microprocessor market share has fallen dramatically from a historical high of 25% indicating that there plenty of room for AMD to improve its position in this market. Secondly, this market is lucrative because of high average selling prices of server processors.

Any Indications on Early Adoption of Llano Chips

Since Llano, a hybrid of CPU and GPU, was launched recently, its impact will not be visible in Q2 2011 results. However it will be useful to see if AMD gives any indication regarding early demand that it is witnessing for Llano chips. Why is this critical? If received well, it could help AMD gain market share in notebook segment , which constitutes almost 30% to its value and is therefore one of the most valuable segments. Notebooks is another area where AMD's market share has dropped since its historical peak and Llano could help turn this around.

See our complete analysis for AMD's stock.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: AMD , INTC , NVDA

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