Wait & See with AMD Shares

Advanced Micro Devices (AMD - Analyst Report) is the second largest producer of microprocessors and chipsets in the world. March quarter revenue missed the consensus by a sliver, although the EPS exceeded handsomely. Forward guidance is for revenue to be down in-line with seasonality (we estimate down around 4-5% sequentially). The long-awaited Phenom and Barcelona are now available, and should help market share gains in 2008.

Additionally, margin improvements shall continue as new products gain momentum and 45nm production ramps up. We think that despite the slow start, 2008 is likely to be a good year for AMD. We remain bullish about this stock, but prefer to take a wait-and-see approach for the time being.

We think we will see the advantages of this strategy unfold over the next two years. As AMD churns out faster and more efficient products at the low-to-mid-range, a large percentage of users with smaller functional needs are likely to switch to the lower-priced product. Further, with the launch of the latest processors, AMD has once again taken the technological lead.

However, the debt level remains very high, and execution remains an issue. We are, therefore, reiterating our Hold rating and $11.00 price target, which corresponds to a 1.1x multiple of our 2008 sales estimate.

Sejuti Banerjea contributed to this report.

Read the full analyst report on AMD