Advanced Micro Devices, Inc.
) is scheduled to announce its second-quarter results on July 19,
2012. We witness significant downward movements in the analysts'
estimates in the build-up to the release.
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AMD's first-quarter non-GAAP earnings were 17 cents a share, ahead
of the Zacks Consensus Estimate of 9 cents on better-than-expected
Revenue came in at $1.59 billion, down 6.3% sequentially and 1.7%
year over year. The Computing Solutions segment which accounted for
76% of AMD's quarter sales was down sequentially due to
seasonality, while the Graphics business segment, which generated
the remaining 24% of its sales, was flat sequentially.
Gross margin was up 34 basis points (bps) sequentially and 142 bps
year over year to 46.1%, driven by improving 32nm yields and a
favorable mix. However, operating margins shrunk 184 bps
sequentially to 8.3% due to higher R&D expenses.
Second Quarter Guidance
Recently, AMD reduced its sales guidance, expecting its revenue to
be down 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.
Agreement of Analysts
Out of the 27 analysts providing estimates for the second quarter,
23 made downward revisions in the last 30 days. Over the same
period, 1 out of 3 analysts decreased the estimate for fiscal 2012.
The company stated that the reduced sales guidance was due to
softness in China, uncertainty in Europe as well as lingering
weakness in the U.S personal computer market.
Also, U.S. technology research firm Gartner Inc. announced that
worldwide PC unit shipments declined 0.1% year over year to 87.5
million units in the second quarter. Shipments were also below the
prior-quarter level of 89 million units.
Hence, with the Gartner report indicating sluggish PC market and
AMD lowering its revenue guidance, the majority of analysts expect
weak second quarter results. They remain concerned about not
only the weak end demand but also expect market share losses.
They contend that the company will be limited by stiff competition
Intel Corp. (
) due to the ramp up of Ivy Bridge for PC clients and Romley for
On the other hand, a handful of analysts believe that once the
macro environment improves AMD will likely benefit from share gains
in servers and cloud computing, and increasing content in notebooks
and desktops. They expect value-priced Trinity based ultrathins to
be a solid driver in the second half of 2012.
Magnitude of Estimate Revisions
In the past 30 days, the Zacks Consensus Estimate fell by 7 cents
for the second quarter and 14 cents to 60 cents for fiscal 2012.
Over the 90-day period also, the Zacks Consensus Estimate fell by 5
cents and 6 cents for the second quarter and fiscal 2012,
AMD is the second largest producer of microprocessors, GPUs and
chipsets in the world. The company's robust product portfolio,
strength in graphics, and advancements in 32nm manufacturing are
However, weakening consumer demand, macro issues, and market share
losses remain a matter of concern. Despite AMD's strong product
line, Intel new products lined up, which along with its growing
capacity and lead at 22nm, should keep it ahead of AMD
Moreover, competition has increased with price cuts in the PC
business because of the growing popularity of
) iPad and other tablets. 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
Hence, AMD shares carry a Zacks Rank of #3, implying a Hold
recommendation in the short term (1-3 months).