FBR Capital Markets lowered its 2011 profit view of Advanced Micro Devices (AMD), after the company ousted its Chief Executive Dirk Meyer.
On Jan.10, AMD said Monday its chief executive Dirk Meyer has resigned with immediate effect and appointed senior vice president and chief financial officer Thomas Seifert as interim CEO. For full story, (click here)
The brokerage cut its 2011 pro forma earnings estimate by 10 cents to 50 cents a share, and 2012 profit by 5 cents to 60 cents a share. Wall Street expects AMD to earn 47 cents a share for 2011, according to analysts polled by Thomson Reuters.
While we wanted to get positive on AMD in 2011, CEO Meyer's dismissal (misguided in our opinion) leaves AMD without a leader or strategy at a critical time as it ramps integrated APU Fusion processors, analyst Craig Berger wrote in note to clients.
With Fusion AMD's top priority, we fail to understand how dismissing the firm's reasonably well-executing CEO and top champion is going to ramp that product steeper, Berger added.
In the fourth quarter, AMD said it earned $375 million, or 50 cents per share, down from $1.18 billion, or $1.52 per share, a year ago, when the company recorded a $1.24 billion in legal benefit towards settling claims against Intel.
Excluding one-time items, the company's earnings rose to 14 cents a share from 11 cents a share last year, while analysts were expecting earnings of 11 cents a share.
AMD's quarterly revenue came in flat at $1.65 billion, slightly better than the analysts' consensus of $1.63 billion.
Looking ahead for the first quarter, AMD said it expects revenue to be flat to down 4 percent sequentially, implying a range of about $1.58 billion to $1.65 billion, while analysts expect revenue of $1.54 billion.
The analyst said average selling prices of AMD chips and operating margins were disappointing, showing volatility AMD's core business. For the fourth quarter, AMD's CPU operating margins fell from 600 basis points (bps) sequentially to only 7.5 percent as lower chip prices and a softer product mix hit the business.
This demonstrates AMD's substantial need for 32-nm, which should ramp seven quarters after Intel, the analyst said.
AMD is having trouble ramping 32-nanometer (nm) yields, AMD's product offering doesn't seem competitive versus Intel, AMD's Magny-Cours server product is seeing limited upside, its op. expense spending is volatile, and share gains remain a show-me story, Berger wrote
AMD's operating expense spending is set to grow 8 percent sequentially due to AMD's 14th week and former CEO Meyer's severance payment.
While some of these spending items will unwind in 2Q11, we think the trend is moving in the wrong direction, Berger wrote.
Analyst Berger said he maintains his market perform rating and $10 price target on AMD stock until the firm's leadership issues are fleshed out.
Shares of AMD closed Thursday's regular trading session at $8.02 on the NYSE.