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Buying AMD For The Long Run Could Be A Good Decision

April 30, 2014 | About:

Advanced Micro Devices (NASDAQ:AMD) is having a good time due to strong sales of gaming consoles. The company posted solid results for the first quarter with terrific growth in revenue and earnings. Its revenue increased 28 percent year-over-year to $1.40 billion.

Its gross margin was 35 percent, while its operating income was $49 million. The company also strengthened its financial position. During the first quarter of 2014, AMD focused on re-profiling its near-term debt maturities. The company issued $600 million in aggregate principal value of 6.75% senior notes due 2019, utilizing proceeds to repurchase approximately $423 million aggregate principal amount of its 6.00% convertible senior notes due 2015 and approximately $48 million aggregate principal amount of its 8.125% senior notes due 2017 during the quarter.

The Way Forward

AMD’s traditional businesses in graphics witnessed strong demand. Its industry-leading R7 and R9 products drove GPU revenue growth year over year and sequentially. And there’s also a ramp of new mobile discrete design wins which is believed to gain momentum and market share as well.

For the personal computing business, AMD’s mobile APU unit shipments increased sequentially in the first quarter as its customers prepared to introduce notebooks powered by Beema and KaveriAPUs.

In the desktop channel, AMD continues to build momentum in the upper part of its portfolio with enrichment of product mix. It continues to build a stronger desktop portfolio, ramping the high-end Kaveri APU and introducing its first low-powered socketed APU for the desktop channel this past quarter. These APUs are expected to drive revenue growth in the coming quarters.

Design Wins Ahead

In the commercial client market, AMD aims to more than double the number of designs to be launched in the market from its key OEM partners compared to last year that will deliver sequential PC revenue growth in the upcoming quarters of 2014.

AMD’s first quarter performance demonstrates that it is making significant progress building the strong foundation required to deliver consistent profitability and revenue growth. Its growth businesses continue to gain momentum. The company remains on track to diversify its revenue base, generating approximately 50% of the revenue from its high-growth businesses by the end of the next year.

AMD is well-positioned to capture the stabilizing PC market to grow revenue throughout the year. It is believed to gain share and grow GPU revenue in 2014 based on the strength of its industry-leading graphics products. Moreover, it is firmly committed to deliver profitability and revenue growth for the full year in 2014.

Valuation and final words

The trailing P/E (ttm, intraday) and forward P/E ratios of 84.38 and 17.61 respectively are quite impressive and indicate earnings growth. The PEG ratio (5 yr expected) is healthy at 0.58 and represent good growth. The earnings CAGR for the next five years (per annum) at 28.40% and 37.00% respectively depict very bright future prospects for the organization supported by a marginally healthy current ratio (mrq) of 1.94. Therefore, looking at the excellent future growth prospects for AMD, investors must grab the stock for the long term.

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