Oppenheimer On AMD Following Earnings: PC's 'Turning The Corner, But Challenges Remain'

• The share price of Advanced Micro Devices, Inc. AMD have declined 27.04 percent in the last six months, from a high of $2.87 on April 16.
• Oppenheimer’s Rick Schafer has maintained an Underperform rating on the company.
• The company reported its Q3 sales modestly above the consensus expectations, although the loss per share was worse than expected.

Analyst Rick Schafer also mentioned that the management guidance to a decline in the Q4 sales by 10 percent quarter-on-quarter to $90 million, below the consensus forecast of $1 billion, “as seasonal declines in semi-custom are partially offset by modest growth in Computing/Graphics.”

On a positive note, the company has entered into a joint venture with Nantong Fujitsu Microelectronics, “which, upon close, provides AMD with a much needed $320M cash infusion, helping offset the ~$260M cash burn we forecast through CY16,” Schafer stated.

With regard to the Q3 results, the Computing/Graphics business generated a 12 percent quarter-on-quarter increase in revenue, driven by sequential growth in the channel, which helped mitigate the ongoing softness in consumer PCs. The Enterprise, Semi-Custom and Embedded segments also reported a 13 percent quarter-on-quarter increase in revenues, “as AMD's semi-custom design wins began to ramp in support of holiday console sales.”

According to the Oppenheimer report, “Management believes PC has turned the corner after a multi-quarter channel inventory re-balancing effort and expects Computing/Graphics up again Q/Q in 4Q.”

However, Schafer believes that the company’s outlook could prove optimistic, given the uncertainty regarding Win10 being able to drive sustainable PC growth.

“While AMD's updated product road-map could help re-accelerate non-PC growth, and new semi-custom design wins are encouraging, time-to-revenue and structural PC challenges likely remain an overhang for the foreseeable,” the report added.