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Advanced Micro Devices Inc. (NYSE: AMD) is going to have some upset investors after its second quarter earnings report, but these same investors may want to consider that AMD is still in the first third of its turnaround initiatives. Before getting into the short-term outlook getting in the way of the underlying story here, it is admittedly easy to see why AMD investors are disappointed on the heels of a very solid Intel Corp. (NASDAQ: INTC) earnings report and outlook.

In our AMD preview, we did signal that the AMD message could be different from that Intel’s message.

AMD reported adjusted earnings of $0.02 EPS and $1.44 billion in revenue. Thomson Reuters had earnings estimates of $0.03 EPS (versus a loss of -$0.09 EPS a year ago) on a nearly 24% revenue gain to $1.44 billion. Gross margin was reported as 35%. Unfortunately, WhisperNumber.com had signaled just how high expectations were going as it sent a late-day email – showing that the whisper number was $0.07 EPS.

The first thing we would point is not just that AMD was one of our own nine stocks we picked to potentially double in 2014. It is that AMD had risen from $3.50 when that call was made to north of $4.50 prior to earnings. It turns out that AMD is not getting all of the same benefits that Intel Corp. (NASDAQ: INTC) has gotten with its post-XP recovery, which is reflected in the guidance. Admittedly, we are not going to just wash over this report without some disappointment.

AMD guidance is a disappointment, and that is what the bears will hang their hats on. The company now expects that third quarter revenue will increase 2 percent on a sequential basis, plus or minus 3 percent. This puts the mid-point of revenues at $1.47 billion, with a range of about $1.42 billion to $1.51 billion. Thomson Reuters has a consensus estimate of $1.57 billion – signaling that AMD is running behind its turnaround growth trajectory.

The company ended its second quarter with cash, cash equivalents and marketable securities were $948 million. Here are some other data points:

• Computing Solutions segment revenue increased 1 percent sequentially and decreased 20 percent year-over-year (due to decreased microprocessor unit shipments).
• Microprocessor average selling price increased sequentially and year-over-year.
• Graphics and Visual Solutions segment revenue were up 5 percent sequentially and were up a whopping 141 percent year-over-year (on higher semi-custom SoC shipments); processor unit (GPU) revenue decreased sequentially and year-over-year.

More CFO Outlook data is here. AMD President and CEO Rory Read said in his earnings quote:

Our transformation strategy is on track and we expect to deliver full year non-GAAP profitability and year-over-year revenue growth. We continue to strengthen our business model and shape AMD into a more agile company offering differentiated solutions for a diverse set of markets.

AMD shares were down 1.9% at $4.57 at the close, and shares were down 15% at $3.90 in the after-hours reaction.

We will revisit this turnaround scenario next week after the dust settles. Our take is most likely that the drop in the stock is too much – and likely a gift. Still, it is hard to ignore why panic trading has been seen in a short-term reaction. AMD’s turnaround story is one that is likely will be years in the making, so we are not damning management during the first third of what looks like a successful turnaround that everyone may have gotten too ambitious about. Our view that AMD can still double has not changed by this earnings report, even if we were hoping for a better report and better guidance.