AMD Could Still Go Lower

By Douglas A. McIntyre Published Mar 20, 7:07AM EDT

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AMD (AMD) looks inexpensive. Very. It trades for 1.4x revenue. Intel (INTC) trades at 3.1x and Nvidia (NVDA) at 3.6x. And, AMD is down 60% over the last year while Intel is off slightly and NVDA is up almost 20%.

But, there is fresh evidence that AMD continues to cut prices to try to hold market share. One industry expert, quoted in the EETimes: Doug Freedman, of American Technology Research Inc, as saying that "AMD is taking prices down to levels the industry has never seen before in the low-end… We believe poor product mix and excessive channel inventory are limiting the impact of price cuts. We also believe that recent price cuts have been pushed out as they have proven unsuccessful in clearing the inventory or boosting top-line results."

Banc of America analyst Sumit Dhanda told Forbes "the cuts would likely occur April 9 and will most likely cover the company’s desktop products, including Semprons and Athlon X2s, with cuts ranging from 26% to 42%."

AMD is not doing that badly. At least on paper. Its revenue last year was $5.649 billion, and it had a net loss of $166 million. But, the balance sheet has gotten worse. Debt now stands at $3.7 billion.

Operating margins have fallen, and, therein sits the problem. If that trend continues, AMD my push itself into a cash flow bind.

AMD’s shares have corrected more than this before. In 2002, the shares fell 76% to $3.50.

If margins keep going down, the stock could move there again.

Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.