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AMD's stock slumps on analyst's downgrade

AMD's stock slumps on analyst's downgrade

AMD's share price has taken a 13 per cent tumble as a result of analyst James Covello downgrading the company to a 'sell' rating.

AMD's stock price took a hammering yesterday, slipping almost 13 per cent following one analyst downgrading his recommendation from 'hold' to 'sell.'

James Covello, analyst at financial giant Goldman Sachs, issued a recommendation last night that saw the chip giant's status downgraded from 'hold' to 'sell' - meaning Covello strongly advised those with AMD stock still in their portfolio to get rid of it but-quick, even as the company announces hope for the future on the back of new hardware and next-generation console deals.

Investors took Covello's analysis to heart: in trading on the US market yesterday, AMD's stock plunged 12.56 per cent to $3.83 per share for a total market capitalisation of $2.73 billion. In after-hours trading, the company continues to lose out with a further 0.26 per cent being trimmed off its price. The drop came after a month of gains in share price that saw the company's value peak at $4.40 a share in the days prior to the sell-off.

While AMD's share price is still comfortably above its April low of $2.31 per share, the latest drop in value is a worrying sign that investors are beginning to lose confidence in the company. By contrast, rival Intel's share price - based on a significantly larger $118.4 billion market capitalisation - dropped just 1.07 per cent yesterday on news that box-shifter Dell's profits had dropped a whopping 79 per cent in its last financial quarter as a result of slowing demand for PCs and laptops.

Covello's recommendation that investors rid themselves of overpriced AMD stock is a volte-face from his position back in 2006: 'Investors will increasingly question Intel's franchise value until/unless their pricing strategy begins to slow down AMD's momentum,' the analyst claimed, at a time when Intel was posting multiple consecutive quarterly revenue shortfalls and its plucky rival AMD had the upper hand in desktop processor market share.

A lot has changed since 2006, however. Intel's decision to ditch the Pentium 4 family and its performance-crippling NetBurst architecture that year and instead go back to the P6 architecture with its Core family would see AMD's performance lead eroded. AMD's answer was the Bulldozer architecture, a server-centric design appeared to repeat some of the flaws found in NetBurst - and, so far, has failed to do much for AMD's market share.

A more promising direction for the company has been its accelerated processing unit (APU) products, born out of what was once known as Fusion. Building system-on-chip-like products that combine relatively high-performance graphics - never Intel's strong suit - with reasonable x86 cores has allowed the company to gain ground in the budget end of the market, while attracting the attention of Sony who ordered a customised version of the next-generation Jaguar chip for its upcoming PlayStation 4 games console. Microsoft, too, is reportedly impressed with AMD's efforts, and is thought to have designed its next-generation Xbox around a similar semi-custom APU.

In Covello's most recent note, the analyst claimed that the biggest problem facing AMD was the global slowdown in the traditional PC market. 'We expect disappointing results in the PC segment to mitigate the impact of increased revenue from gaming,' Covello told investors of the company's headline-grabbing console deals.

For AMD, the analyst's vote of no confidence is a bitter blow, and has demolished many of the gains the company has made over the past year. It's clear that the company still has much to do to win back the trust of Wall Street - hence AMD's recent announcements of ARM-based Opteron chips, its Fusion-successor hUMA and its official semi-custom processor division, all of which are distinct divergences from the company's traditional x86 chip business. For a company that has positioned itself as poised for a comeback, the next financial year looks like being make-or-break for the company.

8 Comments

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mi1ez 17th May 2013, 11:18 Quote
Seems like he just wants their price to drop so he can buy? Stocks weird me out.
Gareth Halfacree 17th May 2013, 11:36 Quote
Quote:
Originally Posted by mi1ez
Seems like he just wants their price to drop so he can buy?
That's not how financial analysts work. It's also illegal: it'd be stock manipulation on a similar, but grander, level to a pump and dump scam - only backwards.
rollo 17th May 2013, 12:05 Quote
Not really sure how this is relivent. But rumours were that AMDs stock was higher on rumours of a intel Buyout those Rumours have disapeared so now the stock is a sell instead of a hold.

The fact they have yet to break even in 6 quaters ( since december 2011 ) does not help them much either.
SinxarKnights 17th May 2013, 14:55 Quote
Quote:
Originally Posted by rollo
The fact they have yet to break even in 6 quaters ( since december 2011 ) does not help them much either.

Isn't that around the time AMD went fabless?
rollo 17th May 2013, 15:22 Quote
Close enough id imagine
SAimNE 18th May 2013, 00:20 Quote
it'll probably level out for the most part and make a jump once amd makes another announcement. from what i can see they have been intentionally spamming them out at short intervals to increase their image... and a lot of it looks promising. so soon they will probably release some specs or come out with an announcement about how they got crossfire working across different architectures(havent confirmed it but it seems with the 13.4 drivers trinity apus can crossfire with 7750s... a gcn based card)
SchizoFrog 18th May 2013, 17:18 Quote
The problem is that announcements and future plans that seem promising only work in your favour if you have been on the up or at least stable over the last couple of years. When your company has seen land slide losses and changes to company direction almost at every turn these so called promising announcements just seem like risks and gambles. When it comes to the PC market, everyone seems to blame the decrease of sales on the economic situation rather than the fact that the average household now has a basic PC that is powerful enough to handle almost everything they want to through at it (with the exception of keeping up with high end gaming) for the foreseeable future. If that is the case then can people afford a new games console (MS or Sony), especially one that will most likely cost upwards of £400?
When it comes to the losses faced by AMD, just how long can it carry on? How much debt are they already in and how long before the creditors close in and they get bought out? I think that unless they make a killing with the consoles within the first 12 months (unlikely) then they will likely be bought out some time in 2015.
rollo 18th May 2013, 18:37 Quote
they are 1.1billion in debt with aprox that in cash in hand.
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