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AMD Still Dwarfed by Intel

(AMD story updated with share price changes and analyst commentary)
NEW YORK ( TheStreet) -- Advanced Micro Devices (AMD - Get Report) (AMD) stock has been falling after the company reported a rise in third-quarter earnings as initial excitement over it waned, the broader market appeared flat and other semiconductors only ticked moderately higher or lower in afternoon trading.

Shares of AMD fell 0.5% to $7.11 in afternoon trading while rival Intel (INTC - Get Report) fell 0.4% to $19.24. Earlier, AMD shares had been trading higher in the Friday pre-market session and Thursday after-market session following the release of the report -- and as investors got excited about the possibility that semiconductor hardships had bottomed out and gotten pass a rough patch in the business cycle.

While many nodded at the company's solid third-quarter gross margin and lower operating expenses (despite the weak computing environment in the third quarter) and found solace in the company's ability to maintain profitablity through finance, manufacturing and operational restructuring -- a closer look at the reports generated concerns.

Such concerns included the company's flat fourth-quarter guidance, its weaker performance than Intel for the same quarter, its ability to follow through on new product execution, and its lag in technology next to Intel. Following the earnings report, Morgan Stanley analyst Mark Lipacis told clients in a note that "we have multiple concerns -- fourth-quarter guidance for flat quarter-on-quarter revenues was about 3 points below Intel's, AMD appears to have lost share in server again, GPU revenues declined by 11% quarter-on-quarter and the company expects the inventory correction to extend into the fourth quarter."

"We remain concerned about AMD's 80%-plus revenue exposure to" the consumer PC market, "and execution risks related to its Fusion products," he added. Meanwhile, Goldman Sachs analyst James Covello said, in a client note, that he expects AMD to continue to encounter challenges with its outsourced model because of the complexities of having separate design and manufacturing teams. "This has been evident in the 32nm transition delay."

Stifel Nicolaus analyst Kevin Cassidy said in a client note that AMD did well in the third quarter taking into account a sudden decline in demand and new product launches by rivals. "Returning an operating profit under these conditions is laudable."
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