By William Trent, CFA of Stock Market Beat
Chairman of the Board and Chief Executive Officer Hector Ruiz will present at the Morgan Stanley Technology Conference today at 10:30 a.m. PT (1:30 p.m. ET) and will update the company’s first quarter 2007 guidance.
Ruiz will discuss that AMD is unlikely to meet its previously estimated revenue guidance of $1.6 to $1.7 billion for the first quarter of 2007 as well as provide a product and technology outlook.A real-time audio webcast of the presentation will be available at http://www.corporate-ir.net/ireye/conflobby.zhtml?ticker=AMD&item_id=1473686.
Note that Ruiz will provide a “product and technology outlook,” as opposed to any additional financial outlook. Given that many semiconductor companies tend to get a large portion of their sales in the final month of a quarter, it is often possible to meet targets by offering discounts to customers near the end of the quarter. If the company is too aggressive in doing so, they “stuff the channel” with inventory and miss out on the opportunity to sell it in a later quarter. We believe that has been happening in the microprocessor segment. For example, on Hewlett Packard’s recent conference call Chief Financial Officer Catherine Lesjak said:
While we appropriately make inventory trade-offs, including some strategic buys to take advantage of deals and thereby reduce our overall bill of material costs, we need to do a better job in inventory management, and you should expect us to work on reducing inventory levels going forward.
It was one thing to stock up inventory just in case Windows Vista turned out to be a big hit. Now the impact is known, and it is softer than expected. So now HP will “work on reducing inventory levels.”
That means no end-of-quarter pickup for AMD, who appears to be throwing in the towel on this quarter. The revenue will not meet the guidance of $1.6 – $1.7, which we assume to mean will be less than $1.6. Consensus was at $1.66. Rather than discount further with no hope of “meeting the numbers,” AMD may be more firm about its own pricing decisions and let the market work through this on its own. Unfortunately, we believe it will take more than one quarter for that to happen. It will take even longer if they continue to build more inventory than the market can absorb.
The author may hold a position in the securities discussed. The author’s current holdings are as follows: Long: Union Pacific (UNP) put options; Air Products (APD) put options; Bookham (BKHM; Ballard Power (BLDP); Syntax Brillian (BRLC); CMGI (CMGI); Genentech (DNA); Ion Media Networks (ION); Three Five Systems (TFS); IShares Japan (EWJ); StreetTracks Gold (GLD); Starbucks (SBUX); U.S. Oil Fund (USO); Plantronics (PLT) call options; Short: Ceradyne (CRDN) put options; Tempur-Pedix (TPX) put options; Landstar (LSTR) put options; Plantronics (PLT) put options
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