Advanced Micro Shorts Run for Cover

Business continues to crumble at Advanced Micro Devices(AMD Quote) -- and the beleaguered chipmaker's stock is finally getting some lift.

Shares of AMD gained 4.7% to $13.46 in recent trading Monday, after the company warned investors of a sharp sequential decline in its first-quarter revenue. AMD said revenue will be $475 million below the high end of its initial estimates, coming in at $1.225 billion, as both unit sales and average selling prices continue to plummet.

Investors were quick to finger short-covering as the cause for the curious reaction to AMD's massive revenue miss.

"Wall Street already saw all the hints that this company is struggling," says Fred Weiss, a chip analyst at Atlantic Trust SteinRoe, which has a position in Intel(INTC Quote).

Short interest in AMD had grown to 40 million shares in mid-March, compared with 22 million shares in January.

Monday's warning represents AMD's second negative preannouncement of first-quarter results, with CEO Hector Ruiz paring back sales estimates at an investor conference in early March.

With the stock down 62% from its 52-week high, investors may not see much more room for the stock to fall.

Indeed, the bear case for AMD appears slightly less ominous after the company's brief statements about restructuring, which was also included in Monday's earnings warning.

On its face, the restructuring appears somewhat nominal. Rather than issuing the type of large layoff announcement that typically excites Wall Street, AMD said it would "limit hiring to critical positions" and reduce discretionary expenses.