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Gaming Growth and the PC Market Make AMD a Smart Investment

August 05, 2014 | About:
amal.singh70

amal.singh70

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Chipmaker Advanced Micro Devices (AMD) posted impressive results for the second quarter. The company managed to narrow its losses on the back of improvements in revenue, but it missed analysts’ expectations on the earnings front. AMD thinks that its transition efforts are right on track, and the company will be able to accelerate its growth momentum in the future.

Financial performance

Moving on to financials, AMD’s quarterly revenue grew to $1.44 billion. But, on the earnings front, AMD misses analysts’ estimates of $0.03 per share, as the company posted earnings of $0.02. However, AMD anticipates weakness in sales in the current quarter, which led it to issue a weak guidance.

But, management is now laser-focused on growth initiatives to improve performance. AMD is undertaking strategies to build a stronger business model. It is strategically reducing its operating expenses to improve profit margins. It is also making significant investments in growth initiatives to maintain its momentum. Besides profitability, AMD is also focusing on delivering consistent results. For maintaining this, it is focusing on key products to drive its long-term growth.

Focusing on growth markets

AMD has been focusing on high growth markets, and it seems that the company’s efforts in these markets are progressing well. In fact, AMD now generates about 40% of its revenue from its high-growing markets. With a leading position in these markets and equipped with its cutting edge graphics technology, AMD is expecting to generate about 50% of its revenue from the high end markets going forward.

AMD is seeing strong demand for game consoles. It is expecting demand for gaming consoles to ramp up in the future with the holiday season in the cards. AMD is also reaping benefits from new design wins. The design win at HP’s thin clients and Boeing’s next generation advanced cockpit display are some of the achievements that AMD has reported. More importantly, AMD is looking to accelerate its design win momentum in the first half of this year across its key target markets of thin client, gaming, and industrial controls.

PC market will improve

Moving on to the PC market, AMD is expecting weakness as a result of the consumer market being under pressure. AMD is expecting the PC market to decline 5%-7% this year. However, it saw growth in the shipment of microprocessors with the launch of new notebooks from Acer, Dell, HP, Lenovo and others powered by its latest Beema and Kaveri APUs. AMD is optimistic about its future growth as HP has already announced a full range of elite commercial offerings powered by its chips.

Further, AMD’s OEM design wins, led by strong growth in its notebook GPUs, are now gaining traction. Further, the company's three step transformational strategy is progressing nicely. The growing demand for semi-custom SoCs is driving AMD's market, as it is now seeing strong demand for game consoles that are expected to drive its sales further.

Conclusion

Looking at the valuation, AMD looks expensive with a trailing P/E 78.33. Considering its long term prospects, its forward P/E is a lot more promising at 22.12. The company is showing signs of improvement in its earnings. As a result of these, AMD’s sales are expected to be robust in the future. Also, its five year earnings CAGR is 15%, which is again a bright sign. So, the investors show definitely bet on AMD for the long run.


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Comments

obbie_bs
Obbie_bs - 1 month ago

Why is it you so called Gurus and Professionals tout stuff like AMD and fail to ever point out to unsuspecting investors that AMD has negative net equity and by definition is INSOLVENT

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