Just for Mr Guru ... 3 Reasons Why Advanced Micro Devices (AMD) Keeps Sliding
" ... Unfortunately for AMD, the company started to slide in 2015, reporting an 8% decline in revenue for the first quarter of 2015. This is a steep drop in revenue in comparison to the 3% decline in revenue it expected to report. In addition, the company reduced its gross profit margin guidance for the second quarter of 2015 from 32 to 28%. Based on analyst expectations and the current performance of the company, it looks like AMD might decline right into bankruptcy. The following are three reasons why AMD back-slid in 2015.
1. Declining PC Market
With the rise of tablets, smartphones and phablets, the personal computer market has steadily declined in the last 10 years. Given that AMD specializes in processing chips for personal computers, this is a bad sign for the company. According to PC World, global PC shipments have declined for the fourth consecutive year as of May 2015. This means the worldwide shipment of personal computers is expected to decline by 6.2% in 2015.
In 2016, the research firm IDC expects the shipments of personal computers to stabilize in 2016, with little-to-no growth opportunities in the future. This means that even if AMD had 100% market share of the processing chips within personal computers, which it does not, the company would still decline in 2015 and into 2016.
2. Declining Market Share Vs. Competition
While the personal computer market is shrinking, competition within the industry remains strong. This is not a good sign for AMD. Intel (INTC) has continued to increase its market share and steadily taken away market share directly from AMD. With Intel's need and desire to keep its factories filled and running, The Motley Fool expects Intel to price its products more aggressively in an attempt to capture further market share. With the already declining revenue and gross profit margin of AMD, the company is unable to compete with its competitors on price and continues to slide and lose additional revenue and gross profit margin.
3. Reduction in 2015 Guidance
The future fundamentals and future guidance of AMD support the fact the company will continue to slide in 2015. At AMD Analyst Day in May of 2015, CFO Devinder Kumar told everyone on the call that the company expects revenue to grow by 15% in the second half of 2015 and gross margin increases from 32% in the first half of 2015 to 34% in the second half of 2015.
If the company is able to hit these marks, it would see net profit and a positive free cash flow in the second half of the year. Unfortunately for the company, analysts expect AMD to bring down its full-year guidance, supporting the claim the company will continue to slide throughout 2015.
If the company decides to lower revenue guidance from 15% in the second half of 2015 to 10%, for example, it might be able to have a positive net profit, but barely so. If AMD has a second half revenue growth rate of anything less than 10%, it posts another loss.
With the shrinking personal computer market, increasing competition from leaders such as Intel and the expectation of things not improving in 2015, investors should consider staying away from AMD."
investopedia.com
Mahmoud |
