Last week, we noted how Mad Money's Jim Cramer has fallen out of love with Advanced Micro Devices, Inc (NYSE: AMD) and back in love with an old flame known as Apple (see: Advanced Micro Devices (AMD) is Rising… Again (Thanks to NVDA or Jim Cramer?)) while this week, the latest important news surrounding the stock would be another swipe by Bernstein Research. However, I should also mention that we have had Advanced Micro Devices in our SmallCap Network Elite Opportunity (SCN EO) portfolio since last July and we have had an up and down ride – usually because of earnings reports (see: Advanced Micro Devices, Inc (AMD): When Warm Just Isn't Hot Enough and Time to be Bullish, Bearish or Just Realistic? Advanced Micro Devices' (AMD) Third Quarter Earnings Report). With that in mind, here is the latest AMD news for investors and traders alike to chew on, swallow or spit out:Will a Big Payment to GlobalFoundries Really Impact AMD or Much Ado About Nothing? Bernstein Research's Stacy Rasgon believes that investors have failed to appreciate a huge payment Advanced Micro Devices will have to make to GlobalFoundries this quarter as it continues to feel the impact of weak PC microprocessor demand. Barron's quotes her latest research note as saying:
The Q4 commitment due is, in fact, nothing short of astonishing. Given their purchases in the first three quarters of the year, to meet their total $1.15B commitment AMD is contractually obligated to take over $400M in wafers from GlobalFoundries in Q4, almost double the run-rate in the first three quarters of the year. AMD's purchases from GlobalFoundries in the first three quarters of the year totaled $269M, $255M, and $222M respectively, or $746M overall.
In addition, there is an additional $250M wafer commitment due in Q1. However and if you read the comments on the Barron's article, some of them point out that the payment obligations have been known since earlier this year and that Bernstein is also shorting the stock. One commenter also posted the following note apparently sent by AMD investor relations regarding issue:
Thank you for your email. You are correct; our wafer purchase commitment to Global Foundries is ~$400M in Q4 2013. As we indicated on our October earnings call, we are on track to meet that commitment and indicated that our inventory levels in the 4th quarter would be flat from Q3 levels. We believe this inventory level is appropriate to support our business, as we've seen strength from our high-end A8/A10 APUs, our recently launched R7/R9 GPUs and the continued semi-custom production. We will also begin shipping Kaveri, our next-generation desktop APU in the 4th quarter.
Nevertheless, the AMD bears and shorts appear to have another talking point.The Increased Importance of Video Game Consols to AMD. The Wall Street Journal has an article about how Advanced Micro Devices' future prospects have become closely tied to new videogame consoles hitting the market this month as Sony Corporation (NYSE: SNE) has said it sold one million units of its PlayStation 4 console in the US and Canada in the first 24 hours following its launch late last week while the Xbox One from Microsoft Corporation (NASDAQ: MSFT) goes on sale this Friday. Both the PlayStation 4 and the Xbox One use a customized version of AMD's Jaguar chip family which are not being made by or are covered by the agreement with Global Foundries. And while pent-up demand and the holiday season have sparked a big launch of gaming consols, the Wall Street Journal pointed out that sales are likely to ebb as 2014 progresses and that could be a problem for AMD as Wall Street forecasts its revenue will increase by 11% next year. Share Performance. Advanced Micro Devices is up 42.5% since the start of the year and up 40.7% over the past five year:
Finally, here is a look at the latest technical chart for AMD which reveals some bearish trend lines:
Given the above, it looks like investors in Advanced Micro Devices should brace for more choppy waters rather than smooth sailing – at least for the near term.
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