NEW YORK (TheStreet) -- Advanced Micro Devices (AMD - Get Report) shares continued to fall 4.7% to $3.37 as of 1:25 p.m. EDT, adding to last week's post-earnings losses. Though revenue and earnings beat estimates, the semiconductor specialist's exposure to the low-end consumer computing segment provoked concerns of vulnerability to existing weakness in PC demand.
AMD reported third-quarter net income of $48 million, or 6 cents a share, on revenue 15% higher than a year earlier to $1.46 billion. The company forecast that fourth-quarter revenue will increase between 2% and 8% sequentially.
Though earnings per share beat Thomson Reuters' estimations of 2 cents a share, sales in its computer processing units division disappointed investors, leading to a 13.7% drop in share price on Friday. Sales in the division dropped 15% compared to a year earlier, due to soft PC demand.
During a conference call, President and CEO Rory Read said he anticipates PC shipments to decrease 10% in both 2013 and 2014 and the company is making adjustments to hedge declines.
"Two years ago, 90-95% of our business centered on PCs and we've launched the clear strategy to diversify our portfolio," said Read. "If you look at the results in the third quarter, we are already seeing the benefits of that opportunity with over 30% of our revenue now coming from semi-custom and our embedded businesses."
After reviewing third-quarter results, UBS maintained its "neutral" rating on the chipmaker but revised its price target to $4.10 from $4.50 on weakness in AMD's core PC-related divisions.
Credit Suisse remained bearish on the stock with a price target of $3 and an "underperform" rating. "While we anticipate another profitable quarter in December, sustainability and magnitude of profits in CY14 are still a question mark," Credit Suisse wrote in its report.
TheStreet Ratings team rates Advanced Micro Devices as a Sell with a ratings score of D+. TheStreet Ratings Team has this to say about their recommendation:
"We rate Advanced Micro Devices (AMD) a SELL. This is driven by a number of negative factors, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity and generally high debt management risk."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Semiconductors & Semiconductor Equipment industry and the overall market, Advanced Micro Devices' return on equity significantly trails that of both the industry average and the S&P 500.
- The debt-to-equity ratio is very high at 4.72 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Even though the debt-to-equity ratio is weak, AMD's quick ratio is somewhat strong at 1.10, demonstrating the ability to handle short-term liquidity needs.
- Advanced Micro Devices reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, Advanced Micro Devices swung to a loss, reporting -$1.59 a share vs. 65 cents a share in the prior year. This year, the market expects an improvement in earnings (-15 cents vs. -$1.59).
- 39.22% is the gross profit margin for Advanced Micro Devices which we consider to be strong. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, AMD's net profit margin of 3.28% significantly trails the industry average.
- Net operating cash flow has significantly increased by 108.75% to $21 million when compared to the same quarter last year. In addition, Advanced Micro Devices has also vastly surpassed the industry average cash flow growth rate of -88.58%.
- You can view the full analysis from the report here: AMD Ratings Report
Written by Keris Alison Lahiff.