AMD revenue beats Street but shares slip

SAN FRANCISCO Thu Jan 21, 2010 8:42pm EST

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SAN FRANCISCO (Reuters) - Advanced Micro Devices Inc reported better-than-expected revenue on strong holiday spending but its shares slid more than 4 percent as investors cashed in recent gains.

Stellar earnings from bellwether Intel Corp last week reinforced expectations of a rebound in chip demand, which have propelled chipmakers' stocks higher in past months.

Shares of AMD -- which had posted 12 consecutive quarters of losses until the fourth quarter -- slid 4.2 percent as investors cashed in profits after a more than 75 percent run-up over the past three months.

Some analysts also pointed to uncertainty over the company's part-ownership of a contract chipmaker.

Last year, AMD spun off its semiconductor manufacturer GlobalFoundries, effectively splitting itself into a contract chip manufacturer and a core chip design or "product" company. The latter has since expanded to create chips based on designs by UK-based ARM Holdings PLC.

AMD said that as of the next quarter's earnings report, the company will no longer consolidate financial results with GlobalFoundries.

Debt-laden GlobalFoundries has become a burden on AMD's books as the separation is being finalized. In the meantime, investors and analysts alike are struggling to understand the company's financial statements.

"You have a strong majority of people saying, 'What's the earnings power here?'" said Broadpoint Amtech analyst Doug Freedman. "There's still a lot of confusion around the earnings power for the company because we don't have the de-consolidation."

Wedbush Morgan analyst Patrick Wang agreed, adding that while the de-consolidation is good news, it has been priced into the stock and was not enough to keep investors from cashing out.

"Due to investor sentiment and how semis are being traded throughout this earnings season, good news isn't rewarded," he said.

GOOD NEWS?

Revenue rose to $1.65 billion, versus the Wall Street expectation of nearly $1.5 billion, according to Thomson Reuters I/B/E/S.

AMD said on Thursday net income rose to $1.2 billion, or $1.52 a share, in its fourth quarter ended December 26, reversing a loss of $418 million in the year-ago period.

But the company's net income was boosted mainly by a $1.2 billion legal settlement payment from Intel.

AMD also said sales will be down in the typically weaker first quarter.

Gross margins for the "AMD Product Company," or the chip-designing financial entity that will announce earnings next quarter, grew from 38 percent to 41 percent sequentially.

While company executives would not specify what they expect gross margins to be for the immediate future beyond referencing their earlier target of 40 percent to 45 percent in 2010, the company said it expects to get "beyond" 45 percent gross margin in the longer term.

Analysts on average expect AMD's gross margin to be 43.46 percent for 2010, according to Thomson Reuters I/B/E/S.

Shares of the Sunnyvale, California-based company fell to $8.61 in extended trading, after rising 1.4 percent to an $8.99 close in regular trading on the New York Stock Exchange.

(Reporting by Ian Sherr; Editing by Tim Dobbyn, Matthew Lewis and Richard Chang)

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