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AMD Tumbles as Gaming Profits Expected to Disappoint

Stocks in this article: AMD MSFT SNE

NEW YORK ( TheStreet) - Advanced Micro Devices (AMD) plummeted after forecasting disappointing margins on next-generation gaming products.

AMD was falling 14% to $3.97 despite posting 65% growth in its global semiconductor business.

Overall, the Sunnyvale, CA- based company grew 6.7% in the quarter ended June 30, and expects an additional 22% growth in the third quarter. AMD forecasted increased sales as Microsoft (MSFT) and Sony (Sony) release the Xbox 1 and PlayStation 3 in the coming months. Wall Street consensus had expected AMD to only generate $1.1 billion in revenue, but the company was able to bring in $1.16 billion.

"Our performance in the second quarter was driven by opportunities in our new high-growth and traditional PC businesses," Said AMD CEO and President Rory Read said in a statement "We expect significant revenue growth and a return to profitability in the third quarter."

However, margins for next generation gaming counsels are on the low side. Wall Street had expected operation margins to be closer to 20% but AMD is now predicting closer to 10%. Analysts with Credit Suisse wrote in a report that a vulnerable PC industry and unfavorable royalties environments will test the company.

"To be clear, AMD is making good progress in Computing with break-even operating margin at revenue levels that historically generated large losses - unfortunately, we see profitability upside from here extremely limited as market dynamics in PCs continue to be challenged," wrote the analysts led by John W. Pitzer.

Analysts are split over AMD. Jefferies kept the company at a buy with a price target of $5. JP Morgan held AMD at a neutral, while Morgan Stanley and Credit Suisse both downgraded the equity to underperform with price targets of $2.50 and $3.00, respectively.

-- Written by Robert Arenella in New York

>To contact the writer of this article, click here: Robert Arenella.

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