Advanced Micro (AMD) Bashed On Slowing PC Sales, Cash Crunch

FBR cuts estimates and target on AMD on the expectation of macro economic weakness spreading to Europe and emerging markets. Slowing demand and increased pressure from competitors will depress ASPs and squeeze margins:

Further, recent signs point to a mild slowing of PC demand thus far in 3Q. While it is way too early to ‘call the quarter’ on 3Q PC demand, some signs suggest that the macro-pressures that slowed U.S. spending in early 2008 are spreading to Western Europe and China. We do think AMD will see some seasonal growth in 3Q given share gains in graphics chips (though at lower ASPs and margins) and given continuing growth in emerging market notebook units.

FBR also thinks that AMD will soon face a cash crunch as product delays, the acquisition of ATI, and its recent $5 billion debt issuance have weakened its balance sheet. AMD’s cash crunch may damage its ability to compete in R&D:

AMD could be facing another cash crunch in the coming quarters as it has taken on $5 billion of debt and burned through a lot of cash following product delays and its acquisition of ATI Technologies. AMD now finds its ability to invest in next generation processes and fabs is limited. We wonder if and when the firm will have to revisit the capital markets for another dilutive cash infusion following its December equity raise.

Price target cut from $8 to $5. Q2 revenue and EPS down to $1.48 billion and -$0.49 respectively.

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