AMD Could Guide Sequentially Lower Q1 Revenues

Chip maker Advanced Micro Devices Inc. (NYSE:AMD) could guide its first quarter revenues sequentially lower, according to a Wall Street analyst.

For 1Q12, we think AMD could guide revenues to fall 4%-8% quarter over quarter, or toward $1.62 billion in revenues, in line to slightly better than the Street's $1.60 billion, though visibility still remains low, FBR Capital Markets analyst Craig Berger wrote in a note to clients.

The analyst said that although hard disk drive (HDD) production appears to be recovering faster than initially feared, AMD is not immune to this disruption, and it could weigh on CPU demand until further HDD productivity is realized. The analyst expects first quarter earnings of 9 cents a share, a penny worse than the Street estimate.

Wall Street expects AMD to earn 10 cents a share on revenue of $1.60 billion, according to analysts polled by Thomson Reuters.

We look for insight into Llano yields, 28 nm ramp timing, and server uptake. Gross margins will likely be guided down sequentially, and we estimate a 50-bp drop to 44.5%, said Berger, who has an outperform rating on AMD shares.

Berger, who has a $10 price target on AMD shares, said he likes AMD shares below $6, although he does recognize that the firm's strategy is in limbo as CEO Read takes over and assesses the firm's future in a possible Windows on ARM environment.

That said, we think the stock trades very inexpensively on various valuation metrics and with negative investor sentiment. We see possible upside from share gains in client and server, and from mix and margin benefits as Llano/Trinity make up a greater portion of shipments, said Berger.

Berger noted that investing in AMD shares is highly volatile, with the stock further up the risk profile curve, given its debt position, fabless bleeding edge model, and competitive dynamics versus Intel and ARM-based processor firms.

AMD is set to report its fourth-quarter results on Jan. 19, with Wall Street expecting earnings of 16 cents a share on revenue of $1.71 billion.

Shares of AMD closed Friday's regular trading session at $5.43 on the New York Stock Exchange.