AMD Turnaround Continues, Guidance Needs More Help

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Advanced Micro Devices Inc. (NYSE: AMD) is not a broad stock market moving stock any longer, but this last quarter was a very important quarter for AMD. That also makes it important for Intel, and Intel dropped after its earnings report and drug down AMD shares too.

AMD shares closed down 1-cent at $4.17 ahead of the earnings report, and the stock has yet to recapture the post-Intel share price loss.

AMD reported fourth quarter earnings of $0.06 in adjusted earnings per share and revenue was up 38% and came in at $1.59 billion. Thomson Reuters estimates were $0.06 in earnings per share (versus -$0.14 EPS a year ago) and sales were expected to be up 33% to $1.54 billion. AMD’s gross margin came in at 35%.

This marks a second quarter of profitability in a very long turnaround maneuver, driven mostly by the graphics chip and processor wins from the new Xbox One and PlayStation4. We would point out that the net income was $89 million, or $0.12 per share, but that is on a GAAP basis rather than an adjusted basis previously cited. Analysts use the adjusted basis for comparison.

Rory Read, AMD president and CEO, said, “The continued ramp of our semi-custom SoCs and leadership graphics products resulted in a 38 percent revenue increase from the year ago quarter. Our focus in 2014 is to deliver revenue growth and profitability for the full year by leveraging our differentiated IP to drive success in our targeted new markets and core businesses.”

If you take the guidance for the first quarter of 2014, AMD is targeting an implied revenue range of $1.247 billion on the lower end, to $1.293 billion in middle, to $1.338 billion on the higher end. Thomson Reuters is calling for $1.36 billion.

What really matters here for AMD is whether or not it can achieve its 2014 plan. Thomson Reuters is calling for $0.13 EPS on 11.4% sales growth to $5.85 billion for 2014 revenue. AMD’s top long-term opportunity is not in the declining PC market. It is in video game consoles, new gaming PCs, customized design wins, and ultimately in other graphics-rich sectors of processing.

At $4.17, AMD’s 52-week range is $2.26 to $4.65 and its consensus price target is close by at about $4.25. We noted that options traders were braced for a move of $0.45 or so in either direction after the earnings. After the earnings reaction has been seen, the stock is down $0.40 at $3.77 in the after-hours reaction.

Stay tuned, this turnaround fight has a lot of story left on both sides of the coin.