AMD Hits 52-Wk High On Blowout 4Q, But Analysts Cautious
By SCOTT EDEN
NEW YORK -- Advanced Micro Devices Inc. (AMD) stock rose to a 52-week high Thursday on enthusiasm over the company's turnaround fourth quarter. But as is always the case with the darkhorse microprocessor maker, the looming presence of archrival Intel Corp. (INTC) cast a shadow of uncertainty over the firm's prospects, analysts said.
In early trading Thursday, NYSE-listed shares of AMD surged as much as 15% to 45 1/8, notching its second year high in as many days after rising to 43 3/4 Wednesday. For the last few months the stock has been on fire, rising 153% since late October on growing indications that the company was experiencing a very strong quarter indeed.
But as investors absorbed some cautious statements by industry analysts Thursday, AMD shares gave back some of their early gains. They changed hands recently at 41 3/4, up 1.8%, on volume of 8.7 million shares, compared with average daily turnover of 3.3 million.
After markets closed Wednesday, AMD said earnings for the seasonally strong fourth quarter rose to $65.1 million, or 43 cents a share, from the year-ago $22.3 million, or 15 cents a share. Revenue grew 23% to $968.7 million from $788.8 million. The company credited brisk sales of its new Athlon chip for the rip-roaring results.
The numbers were especially noteworthy given the per-share earnings analysts had been predicting - about a penny - as well as the company's mammoth $105 million loss in the previous period. For most of 1999, aggressive price cuts by market-leader Intel tore into AMD's bottom line.
While analysts praised the company's performance in the quarter, they noted that certain circumstances outside AMD's control coincided to give it a lift, most notably a microprocessor shortage at Intel. When Gateway Inc. (GTW), for instance, couldn't get enough chips from Intel, it took back AMD as a supplier, which it had dropped only a few months before.
As a result, said Merrill Lynch & Co. analyst Joe Osha in a research note, AMD "stepped into the breach admirably," improving its share of the PC microprocessor market to about 17%. The company also is attempting to sell more chips for corporate desktop PCs and low-end servers, an area dominated by Intel, which closely guards that business because of its high profitability.
AMD's pursuit of those new markets, as well as its increased clout in the PC field, could turn out to be a double-edged sword, analysts warned.
"We think that it is highly implausible to imagine Intel sitting back and allowing AMD to build critical mass," Osha said. "Rather, we expect Intel to respond with aggressive pricing, just as it has in the past when AMD has shown signs of life."
An AMD spokesman contended, however, that as the company increases production of the high-end Athlon, which competes solidly in terms of speed with Intel's fastest chips, it will become more difficult for Intel to cut prices without hurting itself. Last year, Intel usurped share in the consumer PC market from AMD by slashing prices, subsidizing those cuts by relying on its monopoly power in the market for high-end chips, where AMD had no rival product.
An Intel spokesman wouldn't comment on forward pricing, citing company policy. He did say the company believes it maintained its market share.
Analysts were cautious about the outlook for Advanced Micro and its stock price. In a research note, Ashok Kumar of U.S. Bancorp Piper Jaffray wrote, "we believe that incremental share gains will be more difficult and, as such, the stock's risk/reward profile could become increasingly unattractive."
An indication of the potential volatility of AMD's financial performance is the current range of per-share earnings estimates for 2000, which stretch from $1 to $5.24, according to First Call/Thomson Financial. Analysts across the board did hike their estimates for the first quarter, pushing the consensus target to 31 cents from 10 cents, although the range on the new target extends from 22 to 53 cents.
-By Scott Eden; Dow Jones Newswires; 201-938-5253 |
