FBR Capital analyst Craig Berger, who actually maintains his Outperform rating on AMD shares, cut his target on the stock this morning to $6, from $7.50. (The shares closed Monday at $3.46.) His worry: the fact that "PC build and sales trends are deteriorating further," hurting AMD's second half business prospects.
"It seems very well known that PC sales are suffering from weak macro demand (including China and Europe), a complete absence of any back-to- school goodness, tablet/smartphone cannibalization, and a production/sales 'air pocket' before the Win8 launch," Berger writes in a research note. "Thus, we are cutting AMD's financial estimates, taking Q3 sales to the low end of guidance, which now embeds a 20% year-over-year revenue decline."
Berger notes that he still expects the company to make a slight profit in the second half. On the stock, he concedes that he was "wrong" to maintain his Outperform rating on a stock that underperformed most peers.
"That said, we do not want to compound past mistakes by downgrading shares below $4," he adds. "While not much is going well for AMD, the firm continues to generate cash and profits (for the most part), even at these low revenues. Further, we think sales levels are now possibly below 'normal' levels given the Win8 ramp and macro-driven inventory de-stocking. Next, the firm does have some recovery prospects with new products in Trinity APUs and SeaMicro servers for datacenters. Finally, we note that Mubadala Development Co. owns about 20% of AMD and is a deep source of capital should further liquidity needs arise."
The analyst adds that he does not think PC makers are ready to dump the only viable source of x86 chips other than Intel; he thinks the stock should be "an intermediate- term moneymaker for investors with a speculative risk appetite."
That said, Berger trimmed his 2012 EPS forecast to 21 cents a share from 29 cents; for 2013, he now sees 10 cents, down from 28 cents. He expects profits a penny a share in Q3 and two cents in Q4, down from five cents and six cents, respectively.
AMD is down 17 cents, or 4.8%, to $3.30, the lowest level in more than 3 years.
