Analysts downgrade AMD on weak 3Q, job cuts
NEW YORK (AP) — Shares of Advanced Micro Devices Inc. dropped to their lowest point in more than three years on Friday.
THE SPARK: The chip-maker will cut nearly 1,800 jobs by the end of the year to cut spending in the face of dwindling sales, and its third-quarter results, announced Thursday, fell short of Wall Street's forecast. A pair of analysts downgraded the company Friday.
THE BIG PICTURE: AMD is the world's second-biggest maker of microprocessors for personal computers. Chip sales are declining as PC sales fall, partly because more consumers are shifting away from PCs and doing their computing on tablets and smartphones.
The job cuts at AMD represent about 15 percent of its workforce.
The Sunnyvale, Calif., company also reported on Thursday that its third-quarter revenue dropped to $1.27 billion from $1.69 billion. It posted a loss of $157 million compared with net income of $97 million a year ago.
Adjusting for certain items, its loss came to 20 cents per share.
Analysts polled by FactSet forecast a loss of 13 cents per share on revenue of $1.28 billion.
AMD also provided a disappointing fourth-quarter revenue forecast.
THE ANALYSIS: The layoffs aren't just bad news for the affected workers. Stacy Rasgon of Bernstein Research said that the job cuts will be "significantly disruptive" to the company, while FBR Capital Markets & Co.'s Craig Berger said that the layoffs will make it harder for AMD to engineer and sell competitive products.
Rasgon also was concerned about AMD's cash levels, saying it may burn through cash as margins — how much revenue is left after costs — decline.
Both Rasgon and Berger lowered AMD to "Market Perform from "Outperform." Rasgon slashed AMD's price target to $2.50 from $4, while Berger reduced it to $3 from $5.
On Friday, Moody's also lowered AMD's corporate family rating to B1, from Ba3. It said the ratings were also placed under review for further downgrade. The ratings agency cited prospects for "significantly weaker than expected operating performance over the next year."
SHARE ACTION: AMD's stock tumbled 45 cents, or 17 percent, to $2.17 in afternoon trading. That's the lowest since March 2009. The shares have lost more than half their value since the beginning of the year.