How Analysts Rate AMD After Its Warning

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Advanced Micro Devices Inc. (NASDAQ: AMD) released some shocking guidance in the after-hours trading session Monday. The guidance referred to the coming earnings report on July 16. As a result of this surprise update, analysts have taken this opportunity to readjust their forecasts.

The company announced that its revenue for the second quarter is expected to be lower than previously guided. AMD now expects this revenue to decrease roughly 8% sequentially, compared to the previous guidance of down 3%, plus or minus 3%. The reasoning behind this decrease is primarily the weaker than expected consumer personal computer (PC) demand.

Gross margin is now expected to be about 28%, compared to the previous guidance of 32%. This drop was brought about due to a higher mix of Enterprise, Embedded and Semi-Custom segment sales and lower than anticipated Computing and Graphics segment APU unit volumes due to weaker than expected OEM PC product demand.

Canaccord Genuity’s analyst Matthew Ramsay said:

Consistent with data points from our Computex meetings in June and from across the PC supply chain, AMD lowered second quarter revenue guidance to (-8%) quarter over quarter versus (-3%) citing weakness in PC OEM sales. While we believe AMD’s diversification strategy continues to show gradual progress and a refreshed roadmap could position the company for more defensible long-term sales, AMD has not been able to stem the decline of its Computing & Graphics business – now down over 40% year over year in first half of 2015 — especially as the PC market has weakened following a stronger 2014.

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Merrill Lynch lowered its 2015 and 2016 EPS estimates by $0.16 and $0.10 respectively. The new EPS estimates are $0.42 for 2015 and $0.34 for 2016. The firm believes that AMD is likely to face ongoing competitive pressure from top competitors Intel Corp. (NASDAQ: INTC) and Nvidia Corp. (NASDAQ: NVDA). As a result, Merrill reiterated an Underperform rating with a $2.25 price objective.

Wells Fargo only mentioned that it was lowering June quarter sales and margin expectations.

FBR Capital Markets lowered its target on AMD. The firm has a Market Perform rating for AMD and the price target was adjusted to $2.50 from $3.00.

S&P Capital IQ maintained a Hold rating and also widened its 2015 operating loss per share estimate to $0.36 from $0.28 and 2016’s to $0.17 from $0.07. The firm kept its 12-month target price at $2.50, on steep peer-discount price-to-sales to reflect AMD’s smaller scale and market share loss.

Credit Suisse’s J. Pitzer detailed in the report:

We are lowering our calendar 2015/2016 Revenue/EPS (ex-SBC) to $4.09 billion/-$0.40 from $4.26 billion/-$0.25 and to $4.40 billion/-$0.09 from $4.64 billion/$0.00, respectively – Street is at $4.30 billion/-$0.19 and $4.46/-$0.07. Per our note on 06/14, despite continued weak PC data-points, we believe Intel can achieve second quarter Revenue guide of $13.2 billion (up 3.3% quarter over quarter) but expect a potential $1.5 billion Revenue shortfall to full year guidance equating to about 3-5 cents. Relative to AMD we maintain our Underperform rating – while we believe management is pursuing a sound strategy and second quarter ending cash of $830 million is a cushion, lack of scale is becoming an insurmountable obstacle with few if any strategic alternatives – we lower our target price to $1.90 from $2.00.

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Shares of AMD were down 17.8% to $2.03 Tuesday morning. The stock has a consensus analyst price target of $2.61 and a 52-week trading range of $2.02 to $4.80.