Advanced Micro Falls 2.2% on Analyst Downgrade - Analyst Blog

Advanced Micro Devices, Inc.'s AMD shares fell 2.2%, touching a low of $3.90, before closing a notch higher at $4.01. The decline came on the heels of a downgrade from market perform rating to underperform rating by the research firm Pacific Crest.

The firm's analyst Michael McConnell revised the rating based on signs of weaker sales of personal computers primarily due to weak consumer demand and surplus inventory.

As per McConnell, a major share of AMD's chips is integrated into consumer desktops, while only an insignificant amount is used in corporate PCs. Furthermore, according to notebook manufacturers, Advanced Micro is apparently losing market share to Intel INTC in notebooks.

PC shipment decline, though a continually disturbing factor so far, is expected to be narrower than before, largely due to stabilization in Western Europe and higher-than-expected sales in other mature markets.  As per the latest report provided by research firm IDC, 2014 PC shipments are expected to contract 6.0%, marginally lower than the research firm's earlier forecast of a decline of 6.1% in March this year. While the outlook for the PC market appears to be improving somewhat, overall PC shipments continue to be hurt by consumer preference for tablets and mobile devices in emerging markets.

However, AMD's shift towards more conducive markets, increased game console wins, adoption of its new products, position in graphics and good execution are expected to pull the company out of the situation. In fact, in the last reported quarter, AMD's top line surpassed its guidance, supported by new products and increased demand for new semi-custom systems on a chip (SoCs).

Advanced Micro Devices Inc. is a leading worldwide designer, manufacturer and marketer of microprocessor solutions for the computing, communications and consumer electronics markets. Its solutions include embedded microprocessors for personal connectivity devices and other consumer markets. The microprocessor products are used in desktops, mobile computers and servers.

The company is set to report its second quarter 2014 results next month. Management expects second-quarter 2014 revenues to increase 3.0% (+/- 3.0%) sequentially. Non-GAAP gross margin is expected to be 35.0%. Operating expenses are expected to be approximately $435.0 million.

Another stock downgraded by Pacific Crest on the same day was NVIDIA Corporation NVDA. NVIDIA's shares were down 1.2%. However, it maintained an outperform rating on Intel shares, as it believes that the chipmaker will be less affected by lower demand for desktop PCs because of its larger exposure to corporate PCs.

Currently AMD carries a Zacks Rank #1 (Strong Buy). Another stock worth considering in the same sector is Applied Micro Circuits Corporation AMCC, carrying a Zacks Rank #1.