AMD Needs Revenue Gains, Not Split, to Sustain RallyIan King
Advanced Micro Devices Inc. shares have posted their biggest gains since February in the past week, fueled by speculation that the money-losing chipmaker is considering breaking itself up or spinning off units.
That rally may fizzle on signs that a breakup isn’t in the cards. The company denied a Reuters report on Friday that it has hired advisers to explore a split, saying in a statement it has no such project in the works. Analysts also said a separation of units would be risky and ill-advised.
AMD should remain a single company so it can integrate and improve products that have lost market share to Intel Corp. and Nvidia Corp., according to analysts such as Gus Richard of Northland Capital Markets and Deepon Nag of Macquarie Research. Nag also cited potential regulatory challenges to any plan to sell assets. AMD, which unveiled new graphics chips last week, said it plans to stick to the strategy of expanding into new markets for custom-made chips.
“AMD is much better off keeping the company together if possible,” Richard said. “The only possible reason to split the company is to raise cash.”
By keeping its graphics and processors businesses together, AMD is in a better position to make the most of overlaps in research and development, Richard wrote Monday in a note. On June 9, Richard began recommending that investors buy the stock, arguing that the company could be worth more than its market valuation if it can improve its product offerings. Failing that, its assets may be attractive to potential acquirers, most likely in China, he said.
Sales at AMD, which competes with Intel in personal-computer processors, are forecast to fall 21 percent this year, the average estimate of analysts polled by Bloomberg, as PC demand declines and the company struggles to win back business in server chips -- where Intel has banished it to about 1 percent of the market.
Shares of the Sunnyvale, California-based company rose for a sixth straight trading day, gaining 1.6 percent to $2.62 at the close in New York. The stock jumped 12 percent last week. The recent gains have left the shares down 1.9 percent this year.
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