Ever since Intel (NASDAQ: INTC) announced that it had plans to partner with Apple (NASDAQ: AAPL), there has been a steady and rather disconcerting direction seen for Advanced Micro Device shares.
The real question is: Is it a buy into earnings? As that insightful financial analyst Borat would say: Ish no think so....
Goldman Sachs has continued its stance on AMD as a SELL: (4/8/08)
AMD downwardly revised its Q108 revenue guidance on Monday after the market close due to lower than expected sales across all business segments. The company now expects Q108 revenues to be -15% qoq or $1.5bn versus its previous expectation that Q108 revenues would be in-line with normal seasonality of -5% to -10% qoq. Additionally, AMD will be implementing a 10% workforce reduction by the end of Q308. We are reducing our estimates on lower revenues: CY08 goes to -$2.20 from -$1.65; CY09 goes to -$1.30 from -$0.75; CY10 goes to -$0.30 from $0.40.
In addition, there is an overriding concern that there has been a continual burn-rate that has become alarming. Now, AMD is saddled with over $5 billion of debt and only $1 billion of cash. Not the right balance for a tech company. This is even more worrisome as we have been seeing a rise in cash for many within the sector. In a recent WSJ article, Pui-Wing Tam explored some of the rationale as companies hoard money to protect against an economic downturn.
She pointed out a few selected tech companies cash positions as a percentage of assets: (source: WSJ/Strategas)
Apple: 62%
Google: 57%
Cisco :41%
Qualcom: 40%
eBay:39%
How does AMD compare to that? Not so well ...
Goldman goes on further to discuss the idea that at the rate of burn they are seeing, AMD will have no other alternative than to do some type of equity offering. Of course this will not be taken well by shareholders who will see further dilution of their holdings. I wonder why investors would buy shares anyway, unless they are hoping for a miraculous buyout/rescue.
Although, there the is the odd notion that Wall Street does not seem to care much if companies are in hock up to their eyebrows. In fact, in this market, AMD could actually thrive as investors are giving a pass to many companies with worse news and outlooks. Even so, while you just have to wonder how much worse it can get, I would not be involved here since there are plenty of other names that seem to have a much better outlook.
Recent BloggingStocks analysis on Intel/Apple/Microsoft/AMD:
The Co-Op of Three
AMD: a big mess right now
Things get worse, much worse, at AMD
Reuters Research Mean Recommendation: HOLD
Disclosure: Horowitz & Company clients do not hold positions of AMD as of the date of publish. BUT, they do have LONG positions in MSFT, APPL and INTC.
Andrew Horowitz is a Money manager and author of the bestseller - The Disciplined Investor - Essential Strategies for Success.
The week in preview: Chicken soup (or a doughnut) for the recession-weary soul?
Comfort Zone Investing: Oil's down, which is a start, but not good enough
Stocks have their worst week in six years
