FBR pees on AMD following that atrocious earnings report yesterday. Revenue came in light at $1.35 billion vs. the Street estimate of $1.45 billion. Pro forma EPS of $(0.66) missed consensus of $(0.52). Shipments were down, ASPs were down, margins tightened, and cash is disappearing. FBR:
AMD shipments (-7% QOQ) were worse than Intel’s (flat QOQ), implying AMD lost market share. AMD’s low 37% gross margins reflect its substantial ASP pressures, a result of its stale PC offering, increasing price competition in graphics chips, and poor demand for its consumer chips, as we previewed.
FBR is also sceptical of management’s claims that AMD can return to profitability in Q4 and is predicts that the firm may have to raise additional capital as early as April 2009:
While management repeatedly said it will be profitable in 4Q08, we remain sceptical–no matter if it is Dirk Meyer or anyone else as CEO, we do not think this is enough time for AMD to become profitable.
Stepping back from near-term business, 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. AMD now finds its ability to invest in next generation processes and fabs is limited. We wonder if and when the firm will revisit the capital markets for another dilutive cash infusion. Management says it needs to raise capital when gross cash falls to $800 million, which we think happens in April 2009.
Though FBR maintains its Market Perform rating and price target, it urges clients to avoid shares of AMD.