Advanced Micro Devices Inc. (AMD, Financial) has had a rough year in 2012 with continuously declining financial performance and share price. AMD is the world’s second largest producer of microprocessors behind Intel (INTC, Financial). The chipsets produced by AMD are used in a wide range of devices including laptops, PCs, tablets, servers, and gaming consoles. Despite the wide market, AMD is facing a steep decline in its revenue and therefore its profit. Due to its weak financial performance, AMD has also witnessed a steep decline in its share price throughout 2012. The decline is evident from the fact that AMD’s 52-week range of share price has been between $1.81 and $8.35, and currently the shares are being traded within the range of $2.55 and $2.68. The following chart represents the trend of AMD’s share price over the past year.
It can be observed from the chart that AMD’s share price followed a downward trend immediately after the first quarter. The company disclosed weak financial performance at this point and it influenced its market performance. Following is a brief overview of AMD’s financial performance over the past year.
Financial Performance
The overall revenue has continuously declined for each quarter in the past year. For the quarter ended Dec. 31, 2011, the revenue of the company was $1.69 billion and after gradual decline, the revenue reached $1.27 billion for the quarter ended Sept. 29, 2012. A steep downward trend can also be observed in the operating income of the company. The operating income in the quarter ended Dec. 31, 2011, was $71 million, and it declined to a loss of $590 million in the quarter ended March 31, 2012. The loss was due to high cost of sales in that quarter. Although the financial performance recovered a little with an operating profit of $77 million in the quarter ended June 30, 2012 it declined again when the company disclosed an operating loss of $131 million in the quarter ended Sept. 29, 2012.
The main reason behind AMD’s weak financial performance has been the declining demand. The decline in demand for AMD’s products is due to the shifting trends in the market and increasing competition. The biggest competition faced by AMD comes from Intel which currently holds the leading position in the high-end marketplace. Intel currently owns 60% of the global processing unit market share. AMD holds a mere 21% of the market share which is significantly lower than that of Intel. The market share of Intel also provides the company with economies of scale making it easier for it to expand and to invest toward research and development.
Another factor that has caused a decline in demand for AMD’s products is the company’s lack of support for Android tablets. The current trend in the market suggests that tablets running Google’s Android OS are gradually capturing a significant chunk of the market, and AMD’s lack of involvement is causing the company a considerable loss. Instead of focusing on Android tablets, which AMD considers low end, the company is focusing on high-end tablets running Microsoft’s Windows 8. These tablets have full functionality and they can run all the PC applications. AMD recently unveiled a new tablet chip called Temash. This new tablet chip will support full OS while consuming very little power.
Stock Ratings
Due to its weak financial performance and unstable market performance, AMD has not been among the favorites of stock analysts. The analysts at Zacks have given AMD’s stock a "neutral" rating with a target price of $2.75. The analysts at Nomura also hold their "neutral" rating for the company’s shares. These ratings are based on the vulnerable business profile of AMD and unclear prospective financial performance.
After the analysis of the financial and market performance of the company, the factors behind the declining financial performance, and stock ratings from other analysts, in my opinion, investors should hold their investments in the company. The rationalization behind this recommendation is that the company is following a continuous decline and buying AMD’s stock at this point cannot prove to be a favorable decision. With regard to selling the investments, the stock prices are near the lower end of their 52-week range, therefore selling them at this point may be at a significant loss.
It can be observed from the chart that AMD’s share price followed a downward trend immediately after the first quarter. The company disclosed weak financial performance at this point and it influenced its market performance. Following is a brief overview of AMD’s financial performance over the past year.
Financial Performance
The overall revenue has continuously declined for each quarter in the past year. For the quarter ended Dec. 31, 2011, the revenue of the company was $1.69 billion and after gradual decline, the revenue reached $1.27 billion for the quarter ended Sept. 29, 2012. A steep downward trend can also be observed in the operating income of the company. The operating income in the quarter ended Dec. 31, 2011, was $71 million, and it declined to a loss of $590 million in the quarter ended March 31, 2012. The loss was due to high cost of sales in that quarter. Although the financial performance recovered a little with an operating profit of $77 million in the quarter ended June 30, 2012 it declined again when the company disclosed an operating loss of $131 million in the quarter ended Sept. 29, 2012.
The main reason behind AMD’s weak financial performance has been the declining demand. The decline in demand for AMD’s products is due to the shifting trends in the market and increasing competition. The biggest competition faced by AMD comes from Intel which currently holds the leading position in the high-end marketplace. Intel currently owns 60% of the global processing unit market share. AMD holds a mere 21% of the market share which is significantly lower than that of Intel. The market share of Intel also provides the company with economies of scale making it easier for it to expand and to invest toward research and development.
Another factor that has caused a decline in demand for AMD’s products is the company’s lack of support for Android tablets. The current trend in the market suggests that tablets running Google’s Android OS are gradually capturing a significant chunk of the market, and AMD’s lack of involvement is causing the company a considerable loss. Instead of focusing on Android tablets, which AMD considers low end, the company is focusing on high-end tablets running Microsoft’s Windows 8. These tablets have full functionality and they can run all the PC applications. AMD recently unveiled a new tablet chip called Temash. This new tablet chip will support full OS while consuming very little power.
Stock Ratings
Due to its weak financial performance and unstable market performance, AMD has not been among the favorites of stock analysts. The analysts at Zacks have given AMD’s stock a "neutral" rating with a target price of $2.75. The analysts at Nomura also hold their "neutral" rating for the company’s shares. These ratings are based on the vulnerable business profile of AMD and unclear prospective financial performance.
After the analysis of the financial and market performance of the company, the factors behind the declining financial performance, and stock ratings from other analysts, in my opinion, investors should hold their investments in the company. The rationalization behind this recommendation is that the company is following a continuous decline and buying AMD’s stock at this point cannot prove to be a favorable decision. With regard to selling the investments, the stock prices are near the lower end of their 52-week range, therefore selling them at this point may be at a significant loss.
