Advanced Micro Devices (AMD, Financial) is an American worldwide semiconductor company based in Sunnyvale, California, that develops computer processors and related technologies for business and consumer markets. While initially it manufactured its own processors, the company became fabless after Global Foundries was spun off in 2009. Although the company has been struggling for well over 12 months, the company may still offer more downside as it struggles due to declining sales and increasing competition.
Disappointing quarter
In the previous quarter, revenue of $1.03 billion declined 17% sequentially due to reduced customer and graphic product sales followed by year-over-year decline of 26%. In company’s computing and graphics division and enterprise embedded and semicustom division, revenue declined 20% and 14% respectively.
Gross margin came in at 22%, down 2% points as compared to the previous year’s same quarter. Operating expenses were $357 million, declined $9 million compared to prior quarter. Operating loss and net loss were $30 million and $73 million respectively.
Net interest expense, taxes and other income were $43 million in this quarter, an up surge from $34 million in the prior quarter. Adjusted EBITDA was $13 million, declined from $96 million in the prior quarter.
Will AMD survive the fall of PC market?
As a consequence of lenient PC demand and company’s work to rebalance their channel demand list, desktop processor and GPU revenue declined considerably from the year-ago quarter. The certainty now is that low-margin tablets, Chromebooks and smartphones are authentic computer products.
AMD's chances of moving north are very rare until and unless they focus primarily on Chromebooks. It is healthier to persist on depth margins than to perish leisurely from falling sales of higher-margin laptops and desktop computers.
Chromebooks is the wildest growing computer gadget in the U.S. K-12 education market. Intel (INTC, Financial) is probable delivering most of the x86 processors inside those millions of Chromebooks being traded to schools in the U.S. and other nations.
Increasing competition
AMD’s sales have been falling over a long period of time and it has been challenging for the company to compete openly against Intel and its governing market share in x86 chips. AMD acquired graphics card maker ATI to expand its revenue with high-tech graphic cards and APUs, but between the four quarters of 2013 and 2014, Nvidia (NVDA, Financial) escalated its market share of add-in graphic boards from 65% to 76%. AMD observed that its share fell 11% to account 24% from 35%. To dodge being crumpled in the middle of Intel and Nvidia, AMD concentrated on strengthening its Enterprise, Embedded, and Semi-Custom (EESC) segment.
Conclusion
AMD has felt the wrath of the falling PC market, and the stiff competition hasn’t helped the company’s cause. The company’s share price has been moving down consistently; however, it doesn’t look like coming to a halt any time soon. Although AMD is trading at a seemingly bargain valuation, I’d recommend investors sell the stock as the risk/reward ratio is not in the company’s favor.
