Analysts were not impressed with the earnings report from Advanced Micro Devices Inc. (NYSE: AMD). In particular, the weak outlook for the first quarter gave a platform for investors and traders to hammer AMD shares on Wednesday.
Source: courtesy of AMD.com
The report cost all the gains the shares had enjoyed since December 31. They were up 61% in 2013 and had reached $4.47 on Thursday. They were off more than 10% to $3.71 in mid-morning on Wednesday and are now down more than 4% for the month.
The company expects first-quarter sales to fall 16% from the fourth quarter as it struggles with weakness in sales of chips used in personal computers and softer sales in chips used in game consoles. Wall Street had been looking for an 11% quarter-on-quarter decline. The chip maker expects a gross-profit margin of 35% for the quarter. Sterne Agee said the Street was expecting 35.6%.
For the year, AMD expects to grow revenue and to earn a profit.
Susquehanna analyst Chris Caso called the report uninspiring, adding “we still fail to see a path toward sustainable profitability.” He continued a Neutral rating on the stock with a $4 price target.
Sterne Agee cited the problems in computers and soft post-holiday sales for chips used in games. The brokerage cut its first-quarter earnings estimate from $0.03 a share to break even. Sterne trimmed its revenue estimate to $1.34 billion from $1.49 billion. It maintained a $4 price target.
Canaccord Genuity cut its price target for the shares to $5 from $6, even as it sees revenue beating estimates. While Raymond James was not put off by the first-quarter outlook, the guidance nonetheless was not enough to support the “recent momentum in the shares.” The brokerage maintained its Outperform rating.
AMD earned $0.06 a share in the fourth quarter after adjustments, up from a net loss of $0.14 a year ago. Revenue was up 38% to $1.59 billion. The earnings were in line with the Thomson Reuters estimate; revenue beat the consensus estimate of $1.54 billion. AMD’s gross margin came in at 35%.
The decent results were driven by strong sales of its graphics chip and processor wins from the new Xbox One and PlayStation 4. Its long-run opportunity lies with chips for video game consoles, new gaming PCs, customized design wins and ultimately in other graphics-rich sectors of processing.
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