Moreover, management planned several strategic moves to generate positive cash-flows in the long-term. The new business plan is straightforward. The company will stop battling with Intel in the already lost microchip market. Instead, Advanced Micro Devices plans to diversify its line of products. The company has a plan to generate only 40 percent to 50 percent of its revenues from the traditional PC space. It is expecting to generate the rest of the revenue from the other business.
The company looks to expand throughout the PC market. Thus, the company is focusing on the alternate markets, such as new embedded markets and dense-serving segments. As such the company intends to make 40% to 50% of its revenues from quickly growing markets in the future.
Advanced Microchip vs. Competitors
Intel is the absolute leader in the processors market. Intel continues to capture shares of the PC market, though the margins in the PC market keep shrinking. Intel offers a dividend yield of 4.07%, which is enormous in the tech industry. The drop in Intel’s returns is due to the strike Intel faces from macroeconomic conditions. Intel itself seems to be doing exceptionally well in this environment.
NVIDIA Corporation (NASDAQ:NVDA) is also a prominent competitor of Advanced Micro Devices. Nvidia produces a few of the leading graphics cards in the market, but the firm also creates processors for tablets and phones. Moreover, Nvidia nearly has half of its market capitalization in cash, making it the perfect stock for investors chasing nifty cash reserves. Unlike Intel, Nvidia is a relatively easier opponent. The company is likely to be pretty dead money in the near-term as it has little to offer in terms of short-term growth. If you want to go for long-term gains it would be okay, but profits from Tegra product line are going to be a long story.
NVIDIA’s Beta value is 1.49, roughly in the middle of the two stocks compared above. The company’s has significant red flags on key stats like ROE (Return on Equity) -11.6%-, way below the industry average of 20.2%. However, cash flow and assets are increasing at shocking rates over the last couple years. NVIDIA is increasingly focusing on the smartphone and tablet industry, which will surely add to its cash flow.
Like I said, you can not wait much in the near term from this graphics chips maker. If you are willing to hold NVIDIA shares till the end of 2014 or 2015, I would recommend you do that. For now, this stock could be profitable in the long-term only.
Summary
At present, AMD’s financial situation is not stable. The company is highly leveraged. The weakness in the international PC market has also set pressure on demand for the corporation’s processors. Thus, I predict the dull performance to continue for the next few quarters. Nevertheless, the stock looks like a cheap deal, as it is trading at a fraction of its heyday valuation. I believe the restructuring plan is critical for Advanced Micro Devices. The restructuring plan can turn the company around. The cost cutting measures can turn the company back to profitability. There is also this possibility that its cash rich competitors can also make an unexpected take-over offer.
The article Advanced Micro Devices: A Comeback Story ? originally appeared on Fool.com and is written by Cagdas Ozcan.
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