The semiconductor sector has been extremely hit or miss lately. Some companies, which are focused on higher growth areas like chips for automobiles or ‘internet of things’ devices have been able to see solid growth on both the top and bottom line, though firms zeroed in on the personal computer market haven’t been as lucky.
Take Advanced Micro Devices (AMD – Analyst Report) as a great example of this trend. This PC-focused chipmaker has faced trouble in the past as it has been second fiddle to Intel (INTC – Analyst Report), but it has really begun to feel the heat lately as the PC market continues to decline.
In fact, worldwide shipments of PCs continues to decline with this year’s Q1 coming in at 68.5 million units, a 6.7% decline year-over-year. And with the continued rise of tablets, smartphones and so-called phablets, many analysts have little hope for the PC space in the near term.
Thanks to these trends, AMD saw a very weak earnings report for Q1. The company saw revenue from CPUs and GPUs crumble by nearly 40%, while its enterprise, embedded, and semi-custom segment, saw revenues fall by 7% suggesting severe sluggishness for the company in a few key areas.
Shares are down about 12% for AMD in the past month, but this really just continues the long slow decline for AMD over the past several years. The stock is now down over 40% in the past year, and nearly 75% in the past half decade as well.
No Turnaround Coming
With this extreme bearishness, some investors might think that a turnaround is long overdue for AMD. However, analysts don’t seem to agree with this assessment as their recent earnings estimates have almost universally been lower, meaning that more pain could be ahead.
Six estimates have gone lower in the past seven days compared to zero higher for the current year time frame, while we have seen similar trends for the current quarter and next year periods as well. The estimates have crashed so far that the current full year consensus estimate is -0.19/share, compared to a one cent loss projection 90 days ago. This means that year-over-year EPS levels are expected to contract 420% for AMD this year!
And if you think that these predictions are simply just too bearish you should note that AMD has had significant trouble in meeting even lowly analyst expectations. The firm has missed each of the last four consensus estimates by at least 25%, including a four quarter average of 60% misses for AMD.
Given these factors, it shouldn’t be too surprising to note that Advanced Micro Devices has earned itself a Zacks Rank #5 (Strong Sell) and that we are looking for more underperformance from the company in the near term.
Fortunately for investors interested in the semiconductor space, there are a number of better ranked choices out there. One such company that might be worth a closer look is Avago Technologies (AVGO – Analyst Report) as this stock was recently upgraded from a Zacks Rank #3 to a #1.
This company surprised estimates by over 11% last quarter, while it also has a Growth Style Score of ‘A’. So if you are looking to stay in this corner of the semiconductor world, make sure to give AVGO a chance and avoid AMD for the time being.
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