AMD's Critical Earnings Juncture (AMD, INTC)

After today’s close we’ll see earnings out of Advanced Micro Devices (NYSE: AMD).  The estimates have gone from bad to ugly as problems have mounted with the company’s processors.  Analysts are looking for -$0.36 EPS on revenues of roughly $1.79 Billion.  We would caution that estimates have widened out for larger losses even from a few weeks earlier and there are many out there who believe that AMD’s targets for 2008 were too robust at the December analyst meeting.

There is the possibility that a negative on Intel (NASDAQ: INTC) was caused by AMD.  We just aren’t finding anyone on the research side nor on the technology side that agrees with this.  That is even more true when you consider that the quad-core is more like a tri-core and the clocking speeds are running much slower than both original goals and revised goals.  There are also the issues of delays and damaged relationships as a result of the delays.

The good news is that the graphics side of the business might actually carry the quarter.  That alone won’t make up for the processor shortfalls for an entire year ahead, but at least if your name is Dr. Pangloss you could have at least one bright spot to hang your hat on.   

Yesterday’s surge after a disappointing Intel may have been more short covering than anything else as the latest short interest reading grew to 79,207,000 shares from 75,656,300.  That is more than 14% of the float.  We also believe that many are speculating that today could be Hector Ruiz’s last earnings release as the head of the company.  Ruiz is our own top pick for the next technology CEO to be fired. We are not as convinced as Hector Ruiz is that their current succession plan with Dirk Meyer will fly with Wall Street.  Wall Street might be communicating to Mr. Clegg that entirely new blood with a fresh start is needed.  The good news for Ruiz himself is that a general recession might actually give him the excuse to continue poor performance and take away the timing demands on its new processors.

There is also the shot that ATI’s future status and AMD’s current fab-process may all be up for review, although the company has some hidden benefits in keeping each somewhat as is.  Lastly, we are now a year or so away from the Intel trial and now that 2009 is only a year away this could start to at least get some attention from at least the legal watchers that trade stocks.

Covering the financial metrics on this one is actually fairly easy.  The analysts are negative on it, the chart is ugly.  You just have to wonder if the stock has based out or not, particularly if you consider that the one thing that may save AMD is that AMD has to exit to keep Intel from being an official monopoly.  Options expire tomorrow and because each $1 move represents such a large percentage in stock price the open interest isn’t what we’d normally expect.  So we are not using options as a measurement today.

AMD shares have given back almost half of yesterday’s gains and at $6.37 are actually up nearly 20% from recent lows of $5.31. 

Jon C. Ogg
January 17, 2008