The Zacks Analyst Blog Highlights: Advanced Micro Devices, Intel, Microsoft,
Taiwan Semiconductor and American Electric Power
CHICAGO, April 23, 2012
CHICAGO, April 23, 2012 /PRNewswire/ --Zacks.com announces the list of stocks
featured in the Analyst Blog. Every day the Zacks Equity Research analysts
discuss the latest news and events impacting stocks and the financial markets.
Stocks recently featured in the blog include Advanced Micro Devices (NYSE:
AMD), Intel (Nasdaq: INTC), Microsoft (Nasdaq: MSFT), Taiwan Semiconductor
(NYSE: TSM) and American Electric Power Co. Inc. (NYSE: AEP).
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Here are highlights from Friday's Analyst Blog:
AMD Remains a Wait-and-See Story
Advanced Micro Devices (NYSE: AMD) reported first quarter earnings of 17 cents
a share, well ahead of the Zacks Consensus Estimate of earnings of 9 cents.
Despite the solid beat, investor response was lukewarm (shares up just 1.88%
in after-hours trade).
Both Intel (Nasdaq: INTC) and Microsoft (Nasdaq: MSFT), which have significant
exposure to the PC market, reported positive surprises because the HDD
shortage had a less-than-expected impact on sales and channel build rates
appeared to be on the rise. AMD also gained from the situation.
AMD's revenues in the last quarter came in at $1.59 billion, down 6.3%
sequentially and 1.7% year over year, better than its guidance of an 8%
sequential decline (at the mid-point). Revenues also beat consensus
expectations of $1.56 billion by 1.6%.
Revenue by Segment
Computing Solutions was 76% of AMD's sales in the last quarter, down 8.1%
sequentially and consistent with the year-ago quarter. The sequential decline
was seasonal. The client side of the business was hit on both units and ASPs
due to decline in 45nm shipments for desktops.
APUs are growing as a percentage of the mix, with Llano, the first 32 nm APU
making some headway. Pricing was also a negative on the server side of the
business, although shipments increased (driven by Bulldozer).
AMD's Graphics business generated the remaining 24% of its sales, flat
sequentially and down 7.5% from a year ago. Being a seasonally down quarter
for AMD, the sequential growth in GPUs may be considered good. This was driven
by stronger pricing for desktop GPUs in the channel, although game console
revenue was down as may be expected, offsetting this positive.
AMD reported a pro forma gross margin of 46.1%, up 34 basis points (bps) from
the previous quarter and 142 bps from the year-ago quarter. Improving 32nm
yields and a better mix were the reasons for the gross margin expansion.
Operating expenses of $598 million were flat sequentially and up 4.7% year
over year. The operating margin shrunk 184 bps sequentially, while expanding
262 bps year over year to 8.3%. Higher R&D expenses (as a percentage of sales)
drove the sequential increase and were an offsetting factor in the
year-over-year comparison as well.
Both the segments—Computing Solutions and Graphics—did well when compared with
the year-ago quarter. Computing Solutions generated an operating margin of
10.3%, which was down 230 bps sequentially and up 197 bps year over year.
Graphics generated an operating margin of 8.9%, up 183 bps sequentially was
430 bps from a year ago. Mix and pricing were positives for both segments.
On a pro forma basis, AMD generated a net income of $122 million, or a 7.7%
net margin, compared to a profit of $137 million, or 8.1% in the previous
quarter and $56 million, or 3.5% in the year-ago quarter.
Including restructuring, intangibles amortization charges and a one-time $703
million charge related to Globalfoundries, the fully diluted GAAP net loss was
$590 million, or 80 cents per share compared to loss of $177 million, or 24
cents a share in the previous quarter and a income of $510 million, or 67
cents a share in the year-ago quarter.
AMD has done a really good job of reshaping the balance sheet. The long term
debt was flattish at around $1.53 billion in the last quarter. The net debt at
quarter-end was $475 million, compared to $251 million at the end of the
December quarter and $481 million at the end of the March 2011 quarter.
Including long-term liabilities, AMD's debt to total capitalization ratio was
66.4% at quarter-end. The cash and short term investments balance at
quarter-end was $1.5 billion, down 221 million during the quarter.
Inventories were up 22.9% sequentially (partly a build for new product
launches) to $585 million and inventory turns increasing from 7.7X to 5.8X.
Days sales outstanding (DSOs) increased from 50 to 55.
During the quarter, AMD generated $107 million of cash from operations,
spending $281 million on the acquisition of SeaMicro and $40 million on capex.
AMD guided to second quarter sequential revenue increase of 3% (+/- 3%),
implying $1.63 billion at the mid-point, better than the Zacks Consensus of
$1.60 billion. The gross margin is expected to be flat to slightly up and
operating expenses are of around $605 million.
AMD reported a moderate first quarter, with both revenue and earnings beating
our expectations. A more conducive market, new products (Brazos, Llano and
Bulldozer), growing position in graphics and good execution were the reasons
for the earnings surprise. AMD expects better yields to drive continued gross
margin expansion this year, although we remain a bit cautious given the many
new products and potential issues related to the transition to smaller
The company has recently dissolved its remaining stake in Globalfoundries and
is also using Taiwan Semiconductor (NYSE: TSM). While this allows it to focus
on R&D, one wonders how fast it would be able to ramp new products, especially
since it has been having issues with 32nm.
That said, we can't help but feel good about a company that has been
consistently delivering on its promises, whether with respect to building its
product portfolio, or with respect to cleaning up its balance sheet.
Therefore, considering the fact that customer response remains strong and
design wins continue to pour in, AMD may be expected to see some gains in the
Of course, while AMD's products are being launched on schedule and it does
look as if it will take some share from Intel, we need to bear in mind that
Intel also has some new products lined up, which along with its growing
capacity and lead at 22nm, should keep it ahead of AMD.
Cost efficiencies can only do so much; real expansion of margins is dependent
on superior technology. AMD is on the right track and its new products are
already helping. But there seems to still be a ways to go.
Given the above, we maintain our long-term Neutral rating on AMD shares. The
Zacks Rank for AMD is also #3, implying a Hold recommendation in the near term
AEP Misses Due to Mild Winter
American Electric Power Co. Inc. (NYSE: AEP) reported first quarter 2012
adjusted earnings per share (EPS) of 80 cents, at par with the Zacks Consensus
projection. However, EPS was short of 2 cents from the prior-year figure.
The year-over-year decline was attributable to the mild weather in the
company's service territories, which lowered the demand for electricity in the
GAAP earnings during the quarter were 80 cents per share compared with 73
cents per share in the year-ago period.
American Electric Power reported net revenue of $3,625 million in the first
quarter, below the Zacks Consensus Estimate of $3,684 million and the year-ago
quarter revenue of $3,730 million.
During the reported quarter total operating expenses of the company decreased
by $34 million from the year-ago quarter. However, the decline in revenue
offset the positive impact of the reduction in expenses.
As a consequence, the operating income of the company fell by $53 million year
over year to $754 million.
Interest expenses of the company in the reported quarter declined by $13
million from year-ago levels mainly due to lower long-term interest rates.
Earnings from Utility operations during the first quarter were $383 million
versus $389 million in the year-ago quarter. The shortfall was due to lower
retail margins, offset marginally by lesser operation and maintenance
Earnings from Transmission operations were $9 million versus $4 million in the
year-ago quarter. The growth was a result of the positive return from the
investment made by the company in iElectric Transmission Texas and its wholly
owned transmission subsidiaries.
Generation and Marketing registered a loss of $1 million versus earnings of $1
million in the year-ago quarter.
Earnings from River operations which include the company's non-regulated
generating, marketing and risk management activities were $9 million versus $7
million in the year-ago quarter.
Earnings from the Other category, which includes the parent company and other
investments, were ($11 million) versus ($9 million) in the prior-year period.
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