Filed under: Earnings reports, Deals, Competitive strategy, Intel (INTC), Advanced Micro Dev (AMD)
Advanced Micro Devices (NYSE: AMD) comes to the end of year at a 52-week low of $7.62. Very few stocks have done as badly over the last couple of years. In February 2006, the shares traded above $42.
When the company was doing well, it was taking market share in the server and PC industries by producing better chips than bigger rival Intel (NASDAQ: INTC). In some of these segments, the company had about 25% of the market and said it could get to 40%. Intel fought back. It pushed its R&D to produce superior products and cut what it charged for chips, which hurt AMD’s gross margins and drove the company to a loss.
AMD made matters worse by purchasing graphics chip company ATI. That loaded AMD’s balance sheet with debt, just as its operating income fell apart.
AMD could do a few things to improve its position.
The chip company says it will have an operating profit by the end of next year. But, it keeps releasing its products late, and they are often underpowered. The firm’s new Barcelona chip has been a disappointment. AMD might be superior off giving conservative release dates and product information and then doing better than forecasts.
Another part of AMD that troubles Wall Street is its debt, which is over $5 billion. As painful as it might be, AMD should sell ATI. The company’s operations brought in $252 million of AMD’s $1.62 billion in revenue last quarter. And, the unit had negative operating income.
The last thing AMD needs to do it let CEO Hector Ruiz go. He has been the architect of the current disaster and investors are unlikely to think he can have a hand in fixing it. After all, the company has lost well over three-quarters of its market value.
Douglas A. McIntyre is an editor at 247wallst.com.
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