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AMD Struggles to Turn the Corner

Investors wonder whether the chipmaker can overcome the recent spate of bad news.

Updated from 10:11 a.m. EDT


Advanced Micro Devices

(AMD) - Get Advanced Micro Devices Inc. Report

has given investors extra helpings of bad news.

Last week, the chipmaker preannounced that

revenue would miss expectations due to weak sales across all product segments

. It followed up the financial warning a few days later with the news that its

chief technology officer jumped ship


Now, with AMD due to report first-quarter earnings results Thursday, investors can only wonder whether things can get any worse for the Sunnyvale, Calif., chipmaker.

AMD's stock is down more than 60% from its 52-week high of $16.19. Shares finished Wednesday's regular session up 29 cents, or 5.02%, to $6.07.

Among the key questions in the wake of the revenue warning is whether AMD's turnaround plan is still on schedule, or if the chipmaker's latest blow-up has derailed its efforts to right itself.

AMD has lost billions of dollars over the last five consecutive quarters. And the company is expected to lose money in the first quarter as well -- 51 cents a share, according to the average analyst estimate.

But the company has vowed to return to profitability on an operating basis in the third quarter. Whether or not that goal still stands is unclear.

The first quarter's sales shortfall is obviously not a good start. AMD had initially projected that revenue in the first quarter would be seasonal, which it said means anywhere from a 5% to 10% decline from the fourth quarter's $1.77 billion. AMD now says sales will be $1.5 billion, which represents a 15% sequential decline.

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first-quarter report

, which suggests that it gained share in the server market, does not help. AMD can't blame the shortfall on a sluggish economy.

Wedbush Morgan Securities analyst Patrick Wang says the quality of AMD's revenue will be important.

"Were they desperate and did they sell parts at extremely aggressive pricing? Or was it healthy revenue?" are among the questions Wang hopes to get details on.

One of AMD's few positive stories in the last several quarters has been the progress in its gross profit margin, which has steadily moved up from the low point of 28% at this time a year ago. If aggressive price-cutting in the first quarter pushes the margin back down, AMD's promised revival will seem even further off.

Fixing the company requires getting competitive products out the door. AMD has been fighting with one hand tied behind its back for months because of a bug in its quad-core processors that forced it to delay shipments of the chips.

In recent weeks, AMD has

finally begun shipping its desktop and server processors

. AMD's outlook for second-quarter sales will say a lot about whether the company has any hope of regaining profitable market share during this product cycle, or whether AMD is effectively in a holding pattern until the next generation of chips are released later this year.

And in the wake of CTO Phil Hester's departure, investors will want updates on the various technologies that AMD has in the pipeline.

"You have to get confidence that they can get back to plan," says Atlantic Trust SteinRoe's Fred Weiss, whose firm has a position in Intel but not AMD.

"Intel is running three months early, and AMD's running a year late," he says.

Know What You Own:

AMD operates in the semiconductor industry, and some of the other stocks in its field include

Texas Instruments

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(QCOM) - Get QUALCOMM Incorporated Report



(STM) - Get STMicroelectronics N.V. Report

. These stocks were recently trading at $28.58, -3.44%, $41.97, -0.69% and $10.91, -1.98% respectively. For more on the value of knowing what you own, visit's

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