Advanced Micro Tumbles 5.7% on Analyst Downgrade to Sell - Analyst Blog
Shares of chipmaker Advanced Micro Devices, Inc. AMD plummeted 5.7%, touching a low of $2.56, before closing a notch higher at $2.63. The decline came on the heels of a downgrade from market perform rating to underperform rating by European brokerage firm UBS Group AG.
The analyst firm set the second largest chipmaker’s price target at $2.40.
The firm revised the rating based on signs of weaker sales of personal computers primarily due to weak consumer demand.
PC sales have dwindled over the years with consumers increasingly eyeing mobile devices such as a smartphone or a tablet rather than a desktop computer or even a laptop.
Another major reason for the decline in PC sales is related to the cost of devices. In the emerging markets, consumers are opting for relatively inexpensive tablets at the entry level. IDC anticipates PC sales in emerging markets to decline 4.7% in 2015, worse than the research firm’s earlier forecast of a decline of 3.3%.
Also, macroeconomic weakness and political turmoil are other issues are leading to a slowdown in PC sales. Another major reason for the decline in PC sales is related to the cost of devices.
What’s worse, IDC now expects global PC shipments to be 293.1 million units in 2015 with further declines in the long run (until 2019). In dollar terms, the PC market touched $201 billion in 2014, a fall of 0.8% year over year according to the research firm and is now anticipated to decline an additional 6.9% in 2015, finally dropping to $175 billion by 2019.
AMD will be hit harder, particularly because it caters to the consumer side of the business that has been cannibalized by tablets. AMD is also underexposed to enterprise, which is seeing upgrades.
Furthermore, the ongoing weakness in the company’s PC business due to higher-than-optimal desktop and AIB inventory levels in the channel remain headwinds.
However, we note that the company has been trying to adapt to the shift toward mobile by creating alternative custom chips in markets where Intel, its giant rival, doesn’t play. Therefore, Advanced Micro’s shift toward more conducive markets, adoption of new products, position in graphics and good execution are expected to pull the company out of the PC market doldrums.
The downgrade came on a day when other chipmaker stocks also crumbled. Shares of GPU competitor NVIDIA NVDA fell 6.07% to $21.04 while CPU competitor Intel INTC fell 2.92% to $29.89.
Advanced Micro carries a Zacks Rank #3 (Hold). A better-ranked stock in the same sector is Avago Technologies Ltd. AVGO, sporting a Zacks Rank #1 (Strong Buy).
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