AMD (AMD): A Sucker Born Every Minute

In any market, fools probably outnumber smart investor by a wide margin. Shareholders in dead pool tech firms like Sun (JAVA) and AMD (AMD) are not at the "high intelligence" end of the spectrum.

AMD yesterday announced that its revenue was flat in the last quarter compared to the same period last year. The company took a $1.6 billion write-off for its wrong-headed purchase of graphics chip company ATI. After that was taken into account, the company still lost money.

AMD would like investors to believe that, if PC sales and server purchases pick up, it can do fine. Its gross margins did improve from 36% last year to 44%, but that is still far shy of Intel’s (INTC) 58% in the most recently reported quarter.

AMD has one disadvantage compared to a company like Sun. It has over $5 billion in debt and almost $100 million in debt service each quarter.

There are some companies in the tech sector backwater that are not likely to come back. They face larger competitors with better R&D, bigger budgets, larger sales forces, and humongous market shares. AMD has a 20% piece of its market. Sun has less and fights IBM (IBM), HP (HPQ), and a host of other companies marketing servers to enterprises.

The two companies share one other thing in common. Both stocks have been pounded relentlessly. AMD has managed to trade down from over $40 less than two years ago to just over $6. Sun’s shares are down over 10% in the last two years while HP is up about 40%.

AMD is not likely to go out of business. Intel needs a small competitor to keep from being a monopoly. But, being in business and being successful are not the same thing.

Douglas A. McIntyre