The stock price of Advanced Micro Devices Inc. (NYSE:AMD) tumbled after the company cut its revenue forecast for the second quarter, and reported an 11% sales drop. The company cited the weaker consumer demands, sluggish economic growth in China and the worsening instability of the European economy as the main reason of negative sales result. The company’s stock fell by 10.77 percent to $5.01 during the morning trading Tuesday.
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According to a Bloomberg report, Advanced Micro Devices Inc. previously projected in April that its sales would increase in the second quarter by more or less than 3 percent. Yesterday’s 11 percent sales drop report for the second quarter was surprising. The numbers further show that the company’s $1.41 billion revenue is lower than the $1.63 billion average revenue expected by analysts based on the survey conducted by Bloomberg.
Stacy Rasgon, analyst at Sanford C. Bernstein & Co. explained that the company’s sales have been affected by the low demand in PCs as majority of consumers are purchasing tablets. Most of the tablet manufacturers get their microchips from its competitors particularly Intel Corporation (Nasdaq:INTC). Rasgon also observed that new product launches do not provide positive impact for AMD to overcome the macro environment. She said the situation is not good.
Intel also has a big advantage in terms of size. Intel can spend less on research and development as a percentage of sales. However, since Intel’s revenue is far higher than AMD’s, in money terms Intel still outspends AMD.
On the other hand, RCBC Capital Markets analyst Doug Freedman cited tha AMD lost some of its market share to Intel Corporation due to its refusal to cut prices to be able to maintain its profitability. At present, Intel Corporation is investing next-generation chip manufacturing technology to maintain its strong position in the microprocessor industry and to cut production cost.
Other analysts say that the company is struggling with a backlog of large inventory of unsold microprocessors.
Despite the sales drop, AMD is confident that it would be meet its projected gross margin last April. AMD will release its official second quarter report on July 19.