NEW YORK (TheStreet) -- AMD (AMD - Get Report) and Cirrus Logic (CRUS - Get Report) fell Monday following an Oppenheimer report that downgraded both semiconductor manufacturers to "underperform" from "perform."
Despite strong video game consoles sales, analyst Rick Schufer says "structural challenges are mounting" for AMD. The report claims PC sales for AMD will likely decline as Intel (INTC) uses its manufacturing and more cost-efficient chips to gain control of the low-end of the PC market. AMD also faces competition from NVIDIA (NVDA), which remains the dominant player in the PC graphics market.
AMD shares were down 3% to $3.58 in mid-afternoon trade.
Separately, the downgrade to Cirrus has a lot to do with the company's relationship to Apple (AAPL), which makes up 80% of Cirrus' sales, according to Shafer. He didn't put a price target on shares.
Apple will likely remain the semiconductor firm's largest buyer for the foreseeable future according to the research note. Cirrus sees lower average sell prices and gross margins from Apple than it might with other companies.
Cirrus shares fell 2.4% to $19.11 in Monday trading.
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's 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 versus $0.65 in the prior year. This year, the market expects an improvement in earnings (-$0.12 versus -$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 $21.00 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 -12.12%.
- You can view the full analysis from the report here: AMD Ratings Report