AMD's Red-Sky Morning

The Street awaits answers from the ailing chipmaker.
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Updated from 7:54 a.m. EDT

How much money did

Advanced Micro Devices

(AMD) - Get Report

lose?

That will be an important, but hardly the only unpleasant question facing the company as it reports its first-quarter results after Thursday's market close. Shares were up 13 cents at $14.04 ahead of the numbers.

Stung by intense competition with

Intel

(INTC) - Get Report

, AMD's management will have to explain a range of troubling trends in its business, including the company's sudden lack of profitability, a dizzying mountain of debt and a potential need for more funding.

The Sunnyvale, Calif., chipmaker already preannounced that its first-quarter sales would

fall short of expectations, as average selling prices and unit sales declined sequentially. According to AMD, first-quarter sales will total $1.23 billion, down 30% sequentially, and significantly below the $1.6 billion to $1.7 billion range it initially expected.

But AMD left investors guessing about the other key facets of its business.

"We believe the bear case for AMD's revenue is widely priced into the stock; however, the impact to earnings and cash flow from aggressive price cutting tactics is still unclear," wrote American Technology Research analyst Doug Freedman in a recent note to investors.

"We believe the Street could still be surprised by the size of the loss the company could post for the full year," wrote Freedman, who rates AMD sell.

AMD has fallen on hard times as competition with Intel has intensified. For a couple of years, AMD's chips had a technological edge over Intel's, allowing AMD to make inroads with new customers such as

Dell

(DELL) - Get Report

, and grab a 25% share of the microprocessor market.

Intel has mounted a sharp counteroffensive, however,

releasing a torrent of improved dual- and quad-core processors and using its manufacturing muscle to wage a price war with AMD. The price cuts have taken a toll on both companies' profit margins, although AMD seems to be suffering more.

On Tuesday, Intel

reported flat year-over-year sales and profit in its first quarter, but said ASPs for its desktop and notebook processors held steady despite what it described as a "very competitive" pricing environment.

Meanwhile, AMD's

acquisition of graphics chipmaker ATI has added $3.7 billion in long-term debt to the company's balance sheet.

Should AMD need to raise more money in the capital markets to fund its ongoing capital expense and operational requirements, investors fear the company will take on even more debt, or dilute its shares by issuing more equity.

The various concerns have sapped AMD's stock -- which is down 58% in the past 12 months -- and made it a popular target for short-sellers. On Wednesday, a day after Intel's report, shares traded up 4.3% midday to close the regular session up 44 cents to $13.91.

As investors and analysts try to size up AMD's first-quarter performance, estimates are all over the map. The average analyst expectation calls for a loss of 48 cents, according to Thomson Financial. But the 27 individual analyst estimates run the range from a loss of 11 cents to 82 cents.

Pat Becker Jr., of Becker Capital Management, says the wide range in estimates reflects the uncertainty about AMD's gross margins, which have been under pressure from the price war with Intel.

"These are businesses that are very leveraged to that margin number," says Becker, whose firm owns shares of Intel but not AMD. "So just a couple of points of margin has a big impact on the bottom line."

AMD initially said its gross margin in the first quarter would improve slightly from the fourth quarter's 40% level. Given last month's revenue preannouncement, in which AMD said average selling prices declined sequentially, however, it seems clear that gross margin has gone down rather than up.

The only question is how much have margins deteriorated. American Technology Research's Freedman reckons that AMD's margin tumbled as low as 28.7% in the first quarter, about half the 58.5% level of a year ago.

Of course, AMD is not sitting still. The company's stock actually got a boost after its March warning, due to some of the restructuring actions it mentioned, including cutting $500 million in capital expenses this year.

If AMD's management serves up more convincing actions to help weather the tough times, investors may look past the red ink.