AMD's Red-Sky Morning

Pat Becker Jr., of Becker Capital Management, says the wide range in estimates reflects the uncertainty about AMD's gross margins, which have been under pressure from the price war with Intel.

"These are businesses that are very leveraged to that margin number," says Becker, whose firm owns shares of Intel but not AMD. "So just a couple of points of margin has a big impact on the bottom line."

AMD initially said its gross margin in the first quarter would improve slightly from the fourth quarter's 40% level. Given last month's revenue preannouncement, in which AMD said average selling prices declined sequentially, however, it seems clear that gross margin has gone down rather than up.

The only question is how much have margins deteriorated. American Technology Research's Freedman reckons that AMD's margin tumbled as low as 28.7% in the first quarter, about half the 58.5% level of a year ago.

Of course, AMD is not sitting still. The company's stock actually got a boost after its March warning, due to some of the restructuring actions it mentioned, including cutting $500 million in capital expenses this year.

If AMD's management serves up more convincing actions to help weather the tough times, investors may look past the red ink.