Citi Cuts AMD Estimates Despite In-Line Quarter

Advanced Micro Devices (AMD) reported a mediocre quarter and, perhaps more importantly, gave cautious guidance. EPS from continuing ops hit consensus, but Citi still took an ax to estimates:

We are lowering our 2008 revenue and proforma EPS estimates to $6,365M/($1.27) from $6,403M/($1.07) and adjusting 2009 to $7,706M/$0.32 from $7,665M/$0.46. Our target price is unchanged at $7.50 as the lower EPS is offset by a higher multiple.

The combination of AMD’s new products and normal seasonal revenue growth suggests the ramp for new product share gain does not supersede ramp of old product share loss. We think Intel will gain share helped near-term by its new products and relatively lower exposure to the weakening consumer.

AMD continues to target breakeven in 3Q through its 10% headcount reduction and the potential sale of non-core businesses. From 1Q08, the company needs to lower its ~$1,450M of expenses by $215M plus $44M to offset the expected increase in depreciation expense… We don’t think the 10% headcount reduction is enough to reach the target by 3Q08 and don’t have enough detail regarding the sale of non-core businesses.

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