On Thursday after the closing bell, struggling chip-maker
Advanced Micro Devices (NYSE:
) released its fiscal third-quarter financial results. In what
has become a disturbing trend, the company's earnings and
revenues missed Wall Street analysts' expectations and the stock
is getting decimated on Friday. Shares were down better than 16
percent near $2.19.
What is really troublesome about the company's third-quarter
results and the subsequent plunge in the stock price is that the
bar was set extremely low for AMD heading into the quarterly
report. Analysts had been slashing their estimates and price
targets on the stock for months prior to Thursday's earnings
In fact, three months ago, Wall Street was looking for AMD to
post a profit of $0.09 in the upcoming fourth quarter. Now that
estimate has plunged to a loss of $0.04. Over the last 30 days,
twenty-eight analysts have cut their EPS estimates for AMD. As
Wall Street got more and more pessimistic on the near-term
outlook for the company, the share price fell on an almost daily
Over the last three months, not including Friday's massive
plunge, the stock fell 46 percent. In other words, investors were
prepared for the worst, but AMD managed to disappoint these
extremely deflated expectations. This is a pattern that tends to
precede bankruptcies and fire-sales. Year-to-date, AMD shares
have now fallen nearly 60 percent.
Despite the steep decline in the stock, however, the company
still has a market cap of $1.55 billion and a considerable amount
of cash on its balance sheet. As of the end of September, AMD was
holding $1.3 billion in cash and cash equivalents, making an
imminent bankruptcy extremely unlikely.
Nevertheless, the trajectory of the stock and the company's
business suggests that a bankruptcy filing at some date farther
into the future is a distinct possibility. A sale would seem to
be even more likely if things do not turn up for the company in
the near-term. AMD's spiraling share price could make the company
and its considerable assets an attractive acquisition target.
Furthermore, AMD may be forced to initiate a sale.
What is abundantly clear is that AMD's business is
deteriorating rapidly. This was underscored in the most recent
quarter where the company reported an adjusted loss of $150
million or $0.20 per share, compared to a profit of $110 million
or $0.15 per share, in last year's corresponding quarter. This
was 5 cents worse than the already very pessimistic Street
consensus EPS estimate of a loss of $0.15. Revenues also missed
AMD reported sales of $1.27 billion versus $1.69 billion last
year. For those keeping track, that is a 25 percent decline in
revenues in a year's time. That is an extremely ugly number,
which missed Wall Street consensus estimates by $100 million.
Looking ahead to Q4, the company said that it expects revenues to
decline 9 percent, plus or minus 4 percent, on a sequential
Furthermore, AMD said that it is planning to cut 15 percent of
its workforce in order to reduce operating costs. While this move
is likely completely necessary, it is a very poor sign for AMD's
business. After the company's third-quarter results, it is
plainly obvious that the deterioration in AMD's business is
picking up steam. The company has now experienced sequential
revenue declines for the last four quarters and will post another
decline in sales in the fourth-quarter.
This isn't the first time that AMD has found itself caught in
a near-death spiral. In November 2008, AMD shares traded as low
as $1.82 as the financial crisis devastated the Sunnyvale,
California technology company. Only two years prior, the stock
had been trading abvoe $20.00 and in February of 2006 AMD was
briefly a $40.00 stock.
After losing a staggering $3.13 billion in 2008, it seemed as
if the chip-maker was on the road to recovery. In recent years,
shares have traded between roughly $5.00 and $10.00 prior to the
stock's most recent descent into the $2.00 range.
AMD's problems stem from a slowdown in the PC market which
just might drive the company right out of business. Furthermore,
competitors such as Intel (NASDAQ:
) are much more diversified and financially sound than AMD. Intel
is a company with a market cap of over $106 billion and is the
undisputed global semiconductor leader. As AMD gets weaker and
weaker it becomes ever more difficult to compete with behemoth's
The semiconductor industry has been experiencing falling
margins on account of fierce global competition and a cyclical
downturn. Adding to AMD's problems in this environment is its
heavy debt load. At the end of September, its total debt was
$2.04 billion. Fortunately, most of the debt is long-term, which
gives the company room to breathe, but in order to remain solvent
over the long haul, AMD has to actually make money. This has
proven to be a real problem in recent quarters.
Over the last five quarters, the company has managed to lose
$790 million on a GAAP basis. Only two of the five quarters have
shown profits. The bottom line is that this is a debt-laden
company, with much larger and financially flexible competitors
which is operating in an environment which is experiencing a
It is clear that Wall Street is coming to the realization of
how dire things have become at AMD and the stock price remains in
free-fall. This company has been resurrected from the dead
before, but for investors, AMD remains a very risky play.
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