Advanced Micro Devices Inc. (AMD, Financial) is a global semiconductor company which once held a very stable position in the market; however, the company has been reporting declining financial performance for several quarters. The declining sales and earnings of the company have also had a negative impact on the market performance of the company.
From a broad overview of the financial and market performance of the company, the first question that hits the mind is: Will AMD be able to sustain such a scenario? However, if the situation is analyzed more comprehensively, there may still be a chance for AMD to survive. At its very core, the main factor that caused AMD’s decline is the lack of correlation between the operations of the company and the trends in the market. If the company had been proactive in detecting the decline in the PC market, it would have been able to change paths in a timely fashion. Following is a brief review of AMD’s financial performance, market performance, the business risks faced by the company and the company’s plans for survival in the industry.
Weak Financial Performance
AMD recently reported the financial results for fourth quarter of 2012 and things did not get any better for the company. It reported revenues of $1.16 billion in the most recent quarter which declined from $1.7 billion in the same quarter last year. The net loss of the company expanded significantly as well increasing to $477 million from $177 million the same quarter last year. The net loss resulted in a loss per share of $0.63. With such a weak financial performance, it cannot be said with certainty whether the financial performance will get any better in the prospective periods. The following chart represents the financial performance of the company over the past five quarters.
It can be clearly observed from the chart that the revenue of the company has declined in each quarter and the decline has been steady and constant. If AMD does not take any significant steps to tackle the scenario, it would not be wrong to say the decline will continue in the prospective periods.
Business Risks
AMD faces several business risks at the moment. One of the most significant business risks is the shrinking PC market. With the introduction of PC-plus devices, such as smartphones and tablets, the PC market has slowed down. Therefore, the sales of processor chips for PCs have slowed down in the recent past. Although the slowdown in the PC market was an industry-wide issue, AMD has performed poorly against competition. This is because AMD followed a reactive approach, while the competing firms followed a proactive approach. Due to its reactive plans, AMD was unable to cope with the speed of change and the company ultimately got caught in the turmoil.
Another business risk faced by AMD is the fierce competition in the industry. The main competitors of the company are: Intel Corporation (INTC, Financial) and NVIDIA Corporation (NVDA, Financial). Intel holds the position of the leader in the processor market, and despite the shrinking PC market, Intel keeps capturing additional market share. Intel’s strong financial position can be evidenced by its dividend yield which stands at 4.07%. Although Intel’s earnings have declined due to the prevailing industrial factors, they are still stronger than those of AMD. Intel’s EPS for fourth quarter 2012 is 0.48.
Nvidia holds the lead in graphics cards market, and it also produces processors for smartphones and tablets. Although Nvidia holds a comparative stable position in the market against AMD, it is still a weak opponent in the industry as a whole. The net profit margin of the company for fourth quarter 2012 was 15.72%, and the EPS was 0.28. This financial performance is significantly better than that of AMD. Also, Nvidia is increasingly focusing on its products for smartphones and tablets; considering the shifting market trends. Therefore, it can be said that Nvidia is in a much safer position as compared to AMD.
Weak Market Performance by AMD
AMD has lost around 80% of its market value in the past one year, and this decline in the market performance of the company can be directly attributed to declining financial performance of the company throughout the year. Currently, the shares of the company are being traded within the range of $2.55 and $2.67, while the 52-week range of share price of the company has been between $1.81 and $8.35. The significant difference between the two extremes sheds light on the extent of decline that the company has gone through over the past months. The following chart represents the trend of share price of the company over the past year.
It can be clearly observed from the chart that the share price of the company has followed a downward path throughout the year. Considering the declining trend in share price and poor financial performance, it cannot be said with certainty whether the market performance will regain its strength in prospective periods.
Positive Aspects
Some of the aspects that may help AMD regain its strength are its position in the gaming industry and its plans to diversify its business. AMD can focus on its gaming business to generate higher revenue. The company has disclosed its plans to gradually move away from PC market and focus on graphics business.
After the analysis of multiple factors influencing AMD’s market performance, investors should hold their investments in the company. It may not be favorable to sell shares at this point as this may cause significant capital loss. However, it may be better to speculate the market performance of the company which might gain back some strength after implementation of the new business strategy.
From a broad overview of the financial and market performance of the company, the first question that hits the mind is: Will AMD be able to sustain such a scenario? However, if the situation is analyzed more comprehensively, there may still be a chance for AMD to survive. At its very core, the main factor that caused AMD’s decline is the lack of correlation between the operations of the company and the trends in the market. If the company had been proactive in detecting the decline in the PC market, it would have been able to change paths in a timely fashion. Following is a brief review of AMD’s financial performance, market performance, the business risks faced by the company and the company’s plans for survival in the industry.
Weak Financial Performance
AMD recently reported the financial results for fourth quarter of 2012 and things did not get any better for the company. It reported revenues of $1.16 billion in the most recent quarter which declined from $1.7 billion in the same quarter last year. The net loss of the company expanded significantly as well increasing to $477 million from $177 million the same quarter last year. The net loss resulted in a loss per share of $0.63. With such a weak financial performance, it cannot be said with certainty whether the financial performance will get any better in the prospective periods. The following chart represents the financial performance of the company over the past five quarters.
It can be clearly observed from the chart that the revenue of the company has declined in each quarter and the decline has been steady and constant. If AMD does not take any significant steps to tackle the scenario, it would not be wrong to say the decline will continue in the prospective periods.
Business Risks
AMD faces several business risks at the moment. One of the most significant business risks is the shrinking PC market. With the introduction of PC-plus devices, such as smartphones and tablets, the PC market has slowed down. Therefore, the sales of processor chips for PCs have slowed down in the recent past. Although the slowdown in the PC market was an industry-wide issue, AMD has performed poorly against competition. This is because AMD followed a reactive approach, while the competing firms followed a proactive approach. Due to its reactive plans, AMD was unable to cope with the speed of change and the company ultimately got caught in the turmoil.
Another business risk faced by AMD is the fierce competition in the industry. The main competitors of the company are: Intel Corporation (INTC, Financial) and NVIDIA Corporation (NVDA, Financial). Intel holds the position of the leader in the processor market, and despite the shrinking PC market, Intel keeps capturing additional market share. Intel’s strong financial position can be evidenced by its dividend yield which stands at 4.07%. Although Intel’s earnings have declined due to the prevailing industrial factors, they are still stronger than those of AMD. Intel’s EPS for fourth quarter 2012 is 0.48.
Nvidia holds the lead in graphics cards market, and it also produces processors for smartphones and tablets. Although Nvidia holds a comparative stable position in the market against AMD, it is still a weak opponent in the industry as a whole. The net profit margin of the company for fourth quarter 2012 was 15.72%, and the EPS was 0.28. This financial performance is significantly better than that of AMD. Also, Nvidia is increasingly focusing on its products for smartphones and tablets; considering the shifting market trends. Therefore, it can be said that Nvidia is in a much safer position as compared to AMD.
Weak Market Performance by AMD
AMD has lost around 80% of its market value in the past one year, and this decline in the market performance of the company can be directly attributed to declining financial performance of the company throughout the year. Currently, the shares of the company are being traded within the range of $2.55 and $2.67, while the 52-week range of share price of the company has been between $1.81 and $8.35. The significant difference between the two extremes sheds light on the extent of decline that the company has gone through over the past months. The following chart represents the trend of share price of the company over the past year.
It can be clearly observed from the chart that the share price of the company has followed a downward path throughout the year. Considering the declining trend in share price and poor financial performance, it cannot be said with certainty whether the market performance will regain its strength in prospective periods.
Positive Aspects
Some of the aspects that may help AMD regain its strength are its position in the gaming industry and its plans to diversify its business. AMD can focus on its gaming business to generate higher revenue. The company has disclosed its plans to gradually move away from PC market and focus on graphics business.
After the analysis of multiple factors influencing AMD’s market performance, investors should hold their investments in the company. It may not be favorable to sell shares at this point as this may cause significant capital loss. However, it may be better to speculate the market performance of the company which might gain back some strength after implementation of the new business strategy.
