Shares of Advanced Micro Devices (AMD) are up 16 cents, or 2.5%, at $6.69 following the company’s report last night of better-than-expected Q4 earnings per share, and a Q1 revenue outlook slightly below expectations.
The highlight of the quarter from a financial standpoint was the improvement in gross profit margin, which rose by a percentage point, to 46%, from the prior quarter; analysts were also pleased that the company managed to keep operating expenses, including SG&A, and R&D, about the same as the prior quarter, and lower than the company had expected.
From a product standpoint, recently appointed CEO Rory Read said that the company’s server chip business had “re-gained momentum,” having had two quarters in a row of “strong sequential growth.”
Many analysts are waiting to hear more at the company’s analyst day briefing on February 2nd at the company’s Sunnyvale, California headquarters.
David Wong, Wells Fargo: Reiterates an Overweight rating and raises his “valuation range” from $6 to $7.50 to a new range of $8 to $10. “We think that AMD gained share in server processors in the December quarter. AMD�s commentary suggests to us that AMD�s sequential server revenue growth was better than 20% in the December quarter, with ASPs down sequentially, implying that server unit growth was well above 20%. This compares with Intel�s sequential data center revenue growth of 8% in the quarter [...] The expectation of a stable gross margin in March implies, we think, high likelihood of a satisfactory conclusion to the renegotiation of AMD’s wafer supply agreement with Globalfoundries.”
Hans Mosesmann, Raymond James: Reiterates an Outperform rating and a $7 price target. Matching Intel‘s (INTC) outlook for an 8% sales decline this quarter was “not bad at all in our book for a company that has been struggling with 32-nanometer yields that have restricted availability of perhaps one of the hottest processor products in the market, the Llano APU.” Mosesmann thinks “yield issues are now resolved” and he’s looking forward to a “quick transition to the newer Trinity APU that should enable ultrathin form factors with performance of mainstream notebooks and $600 price points.”
Craig Berger, FBR Capital Markets: Reiterates an Outperform rating and a $10 price target. Despite the disappointing revenue miss last quarter, “management did well in other metrics such as gross margins, operating expenses, and improving 32nm Llano supply,” writes Berger. “Further, AMD’s GPU shipments fell 5% QOQ, likely better than NVIDIA’s GPU shipments (which likely fell more than 10% in 4Q11). Berger expects investors “will positively receive management’s refined strategy and additional business detail” at analyst Day. “Stepping back, we like shares of AMD, especially below $7, and think the stock trades very inexpensively on various metrics, and with still-negative investor sentiment.”
Stacy Rasgon, Sanford Bernstein: Reiterates a Market Perform rating, while raising his price target to $6.50 from $5.50. Rasgon wonders if the cloud of AMD’s foundry partner, GlobalFoundries, may finally be lifting. He notes the 85% increases in shipments Llano, and the surge in server chip revenue. “Management commentary indicated GlobalFoundries’ recent practice of cannibalizing their 45nm capacity to serve 32nm needs would be ended in Q1. Finally, management indicated that they believed overall 32nm supply constraints in Q1 would ease (although we note that, given guidance, demand is likely to be lower in Q1 as well). – This is a critical piece of the AMD puzzle. As we have written extensively, AMD’s products should contain significant upside if they can get enough of them out the door. Poor yields at GlobalFoundries have wreaked havoc with this thesis in recent quarters; and a realization of yields more appropriate to high volume manufacturing would be a great boon.”
JoAnne Feeney, Longbow Research: Reiterates a Neutral rating, with no price target, but calls the report “solid,” and says it looks like the company is gaining share. “Our analysis in Monday�s preview showed that AMD would need to gain share in 1Q in order to give the same Q/Q revenue guidance as Intel; guidance points to ~110bp in PC processors or a similar mix of PC and server share gains. We think it likely, given our recent checks, that AMD will continue to gain traction in Bulldozer server CPU share in 1Q and we also see further share gains coming in notebook (Llano) as AMD finally supplies product to meet that pent-up demand.”
Others remain highly skeptical of the business model overall:
Romit Shah, Nomura Equity Research: Reiterates a Neutral rating and a $5 price target. “AMD is making strides to improve manufacturing yields, but at the same time is falling further behind Intel, which will begin ramping 22nm Ivy Bridge this spring.” Despite improved 32-nanometer yields, “we expect the company to continue to be supply constrained for the next few qtrs and may see increased price erosion as Intel ramps 22nm parts in the spring.”
Christopher Caso, Susquehanna Financial Group: Reiterates a Neutral rating and a $5.50 price target. He prefers to hear more at the analyst day before making a judgement one way or the other, he writes.
Jonathan Pitzer, Credit Suisse: Reiterates a Neutral rating and a $7 price target. The company is “stuck in limbo,” he believes. “The set-up for AMD is appealing, but has been for over 12 months – near historic low share in Server but perhaps gaining traction, better cost structure in client with improving 32nm yields, and a continued strong position in core graphics. We want to become more constructive but remain on the side lines as leverage benefits (share, GM, and balance sheet deleveraging) seem to be equally matched by (1) spotty historic execution with Trinity launch expected mid-year at TSMC, (2) potential limited incremental Server gains as Romley launches, (3) potential for a hybrid x86/ARM strategy driving incremental investment and (4) core graphics market in question around APU/Integrated and profitability which declined 66% y/y in 2011.”
Daniel Berenbaum, MKM Partners: Reiterates a Sell rating and a $4 price target. There is still a fundamental structural problem with AMD, he thinks, namely being”squeezed from above by INTC and from below by ARM-based competition.” He notes gross margin and operating expense control were “bright spots.”
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