Financial Analysts Consider AMD “Un-Investable”, Start to Lose Hope

Market Analysts Disappointed with AMD’s Management Mis-Execution

by Anton Shilov
10/22/2012 | 02:25 PM

The recent problems outlined by Advanced Micro Devices as well as the company’s plans for the future accompanied by massive layoffs did not make Wall Street analysts very enthusiastic about the company’s future. In fact, some even believe that AMD is now an “un-investable” company, whereas other think that without sufficient amount of employees the firm will be unable to deliver good products and sell them.

 

Last week AMD said its Q3 2012 revenue declined to $1.269 billion, or by 25% year-over-year and will also be 32% lower YoY in Q4 2012 as a result of fundamental shifts on the market of personal computers and because of the company’s product mix. AMD said it would cut its workforce by 15% in the fourth quarter of the year, would make consolidation of certain sites and will concentrate on the markets of micro-servers, embedded apps and ultra-mobile entry-level devices. The world’s No. 2 supplier of microprocessors was also not confident when it is able to bring back its margins to normal levels from 31% in the third quarter.

“We have no further confidence that any aspect of our prior structural thesis (margin accretion, cash flow, and balance sheet deleveraging) will play out in the foreseeable future. Indeed, we now see the prospect for structurally lower margins, as well as cash burn [...]. Frankly, the most common adjective that comes up when we discuss the company with clients is, simply, ‘un-investable’. We are now believers,” said Stacy Rasgon, an analyst with Bernstein Research, reports Tech Trader Daily.

Analysts accuse management of the company of mis-execution, noting the company’s recent A-series “Llano” inventory write-off, leaving top- and mid-management as well as engineering personnel and other ongoing problems within AMD. One of the major challenges for the company will occur after another round of layoffs is performed as AMD will have less people to develop and sell the products.

“We now have less confidence in go-forward cash burn given rapidly declining ASPs and management’s new refusal to provide gross margin guidance. Thus, we worry about the magnitude of intended pricing cuts and gross margin impacts as AMD’s cash bleed could intensify. […] Further, management’s ongoing misexecution in our opinion seems to be contributing too (building too much inventory, firing top operational managers, channel misalignment, withdrawing from broad swaths of the market). Finally, the firm announced 15% head-count reductions, which will make it more difficult to engineer and sell competitive products,” wrote Craig Berger, an analyst with FBR Capital, in a note to clients.