Today felt like a traditional summer Monday with plenty of market winners and losers and the general sense that it was a wash day. So the Saudis agreed to boost production, but oil still rose to near $137/barrel today in a move that is becoming all too familiar. The markets are getting ready for the two-days before the FOMC announcement on the rate decision, so you can expect the talking heads to come out of the woodwork ahead of this. Here were today's unofficial closing bell levels:
Circuit City Stores, Inc. (NYSE: CC) is down as analysts and others are doubting whether or not the company will allow itself to be acquired. We saw a drop early on And shares were down 20% to $3.42 in the final minutes today.
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After the 3G iPhone was finally announced Monday, with a price tag and a business model that could take the funky phone to the masses, Apple Inc. (NASDAQ: AAPL) ended lower on some profit taking. But have no fear. Already this morning, Citigroup raised Apple's price target to $287 from $248 with a Buy rating, and Lehman raised it to $234 from $202, maintaining its Overweight rating. Despite the stock trading higher in European markets, it's still not showing signs of recovery in premarket trading in the US.
ThinkPanmure initiated Intel Corp. (NASDAQ: INTC) with a Buy, claiming it is gaining market share over rival Advanced Micro Devices (NYSE: AMD). The analyst also said Intel is gaining prominence in the server, desktop and notebook markets.
Hewlett-Packard Co. (NYSE: HPQ) updated its desktop and notebook computers. It introduced Tuesday in Berlin a new ultra-thin portable, the Voodoo Envy, to rival Apple's MacBook Air. H-P also added a new version of a touch-screen desktop PC and 16 notebooks for consumers and businesses.
AMD (NYSE: AMD) will launch a new line of laptop chips, which may help conserve battery power. Who cares? The answer is, probably no one.
According toThe Wall Street Journal, "The combination of chips is particularly good for entertainment applications that are driving many laptop purchases, according to Bahr Mahony, director of AMD's mobile business." And that puts AMD up against chips from much stronger rivals Intel (NASDAQ: INTC) and Nvidia (NASDAQ: NVDA).
AMD's share of the laptop market is about 14% and it has been falling. Several of its products have been late to market, which is unlikely to make it a favorite with PC and server companies that rely on chip delivery timing to launch products.
While there is some chance that the latest chips from AMD could help it get share back from the competition, Wall Street is betting otherwise. Over the last two years, AMD shares are off over 70% while Intel's are up over 30%. That means next to no one thinks the chip company can make a comeback.
The market for PC and server chips may be slowing a bit as it becomes more mature. So, big chip companies like Intel (NASDAQ: INTC) need to figure out where to get their next spurt of growth. Smartphones and other "intelligent" wireless devices sales are rising fast, so why not take a piece of that market. One reason is probably competition, but that rarely keeps companies from entering a market that they think is promising.
According toThe Wall Street Journal, "Intel Corp has been heavily promoting a new breed of pocket-size portable devices as a future market for its chips. Its competitors now hope to reap the benefits." Texas Instruments (NYSE: TXN) and Qualcomm (NASDAQ: QCOM) already dominate the mobile market and may not want to let Intel in. Other large chips companies like Nvidia (NASDAQ: NVDA) and AMD (NYSE: AMD) would like a piece of the pie as well.
The gamble by Intel is that there will be huge demand for devices that are smaller than a PC but larger than a smartphone. They will eventually run on WiMax, WiFi and standard cellular broadband networks. The industry calls these "mobile Internet devices."
The success of the new market may swing on one large miscalculation. Consumers may not want a one-pound mini-computer with a tiny keyboard and modest-sized screen. Smartphones like the Apple (NASDAQ: AAPL) iPhone and RIM (NASDAQ: RIMM) BlackBerry are already advanced "computers" and they are being improved every year.
New chips for new devices -- but what if no one wants them?
Advanced Micro Devices (NYSE: AMD) shares opened in the green this morning but have dropped as the day moved on after rumors surfaced that the EU was planning to take action against competitor Intel (NASDAQ: INTC). AMD headed back down after the EU denied that it has yet reached a decision in the matter. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on AMD.
After hitting a one-year high of $16.19 in July, the stock hit a one-year low of $5.31 in January. This morning, AMD opened at 7.01. So far today the stock has hit a low of $6.77 and a high of $7.07. As of 12:45, AMD is trading at $6.80, down $0.12 (-1.7%). The chart for AMD looks bullish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bearish hedged play on this stock, I would consider an October bear-call credit spread above the $9 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 11.1% return in five months as long as AMD is below $9 at October expiration. AMD would have to rise by more than 32% before we would start to lose money. Learn more about this type of trade here.
Advanced Micro (NYSE: AMD) delivers high performance products through four divisions: Processors, ATI Products, Embedded Solutions and Support & Drivers.
Abu Dhabi purchased a $622 million dollar stake in AMD in November 2007.
AMD option volume was heavy on May 6 with 130,784 contracts trading. AMD May option implied volatility is at 68; June is at 50; below its 26-week average of 74 according to Track Data, suggesting decreasing price movement.
Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
Cymer (Nasdaq: CYMI) makes excimer light sources for manufacturers of photolithography tools in the semiconductor equipment industry. It offers field support products, customized to support chipmaker customers in their advanced wafer patterning processes. It also provides deep ultraviolet light sources to lithography tool makers, who integrate the sources into their wafer steppers and scanners for subsequent sale to chipmakers. Cymer has installed more than 3,000 light sources around the world, in plants run by the likes of Advanced Micro Devices (NYSE: AMD), IBM (NYSE: IBM), Intel (NASDAQ: INTC) and Texas Instruments (NYSE: TXN).
Investors were pleased earlier in the week, when the firm announced a $100 million buyback program and then issued a solid quarterly summary. Cymer reported Q1 EPS of 41 cents and revenues of $124 million. Analysts had been looking for 35 cents and $119.3 million. Management also said Q2 revenues would be comparable to the Q1 total of $124 million ($116.6M consensus) and that gross margins would hold at approximately 48%.
The mood this week has changed sharply from the post-GE disappointment, despite weak economics still hitting the screens every morning in economic numbers. In fact, the week went much better than it was looking on Monday, and everyone remembered the old chant, "markets climb up a wall of worry." Even oil heading above the $116 per barrel isn't killing things. Here are unofficial closing levels:
Advanced Micro Devices Inc. (NYSE: AMD) down after reporting a net loss of $358 million on $1.5 billion in revenues. Losses were narrowed from the same quarter last year. The company also released plans to cut additional cost. If insiders want that stock to go up, they need to fire Hector Ruiz. Shares were down 1.6% at $6.09 going into the close.
The Wall Street Journal reported that New York state's attorney general, Andrew Cuomo, has launched an investigation into auction-rate securities and is seeking information from some of Wall Street's biggest institutions including UBS AG (NYSE: UBS), Citigroup Incorporated (NYSE: C) and Merrill Lynch & Co Inc (NYSE: MER), a person familiar with the matter said.
According to the Financial Times, Deutsche Bank AG (NYSE: DB) and other investment banks are working on plans to develop a clearing house for the credit derivatives markets. In an attempt to reduce counterparty risk, the banks are trying to develop a system that would only allow institutions with strong capital bases and credible trading histories to clear trades in the credit default swap markets with a central counterparty.
OTHER PAPERS:
The news that The Royal Bank of Scotland Group Plc (NYSE: RBS) is planning a rights issue of between GBP5B and GBP12B received mixed reviews from British analysts and investors, the Telegraph reported. The analysts expect the bank to cut its dividend.
AMD (NYSE:AMD) announced its sixth straight loss. For the first quarter of 2008, the company reported a net loss of $358 million, or 59 cents a share, compared with a net loss of $611 million, or $1.11 a share, for the year-earlier period.
MarketWatch writes "Revenue was $1.5 billion, up from $1.23 billion for the year-ago period. Analysts had expected the chipmaker to report a loss of 48 cents a share on revenue of $1.52 billion, according to FactSet Research."
The company's survival as an independent company remains at stake. The firm said that second quarter results would be down.
AMD still carries long-term debt of over $5 billion and with operating losses it remains difficult to see how the company can attack an amount of that magnitude while still investing aggressively in R&D. Larger rival Intel (NASDAQ:INTC) has the balance sheet and cash flow to continue to launch new chips, many of which have features superior to those of AMD products.
AMD may have only two choice now. One would be to sell the company to a more successful chip operation like Nvidia (NASDAQ:NVDA). The other is to auction off its graphics chip operation ATI, and hope that it can get enough money to help take down a large portion of its long-term debt obligations.
Either way, AMD is unlikely to look that same as it does now by the end of the year.
Douglas A. McIntyre is an editor at 247wallst.com.
Ever since Intel (NASDAQ: INTC) announced that it had plans to partner with Apple (NASDAQ: AAPL), there has been a steady and rather disconcerting direction seen for Advanced Micro Device shares.
The real question is: Is it a buy into earnings? As that insightful financial analyst Borat would say: Ish no think so....
Goldman Sachs has continued its stance on AMD as a SELL: (4/8/08)
AMD downwardly revised its Q108 revenue guidance on Monday after the market close due to lower than expected sales across all business segments. The company now expects Q108 revenues to be -15% qoq or $1.5bn versus its previous expectation that Q108 revenues would be in-line with normal seasonality of -5% to -10% qoq. Additionally, AMD will be implementing a 10% workforce reduction by the end of Q308. We are reducing our estimates on lower revenues: CY08 goes to -$2.20 from -$1.65; CY09 goes to -$1.30 from -$0.75; CY10 goes to -$0.30 from $0.40.
In addition, there is an overriding concern that there has been a continual burn-rate that has become alarming. Now, AMD is saddled with over $5 billion of debt and only $1 billion of cash. Not the right balance for a tech company. This is even more worrisome as we have been seeing a rise in cash for many within the sector. In a recent WSJ article, Pui-Wing Tam explored some of the rationale as companies hoard money to protect against an economic downturn.
She pointed out a few selected tech companies cash positions as a percentage of assets: (source: WSJ/Strategas) Apple: 62% Google: 57% Cisco :41% Qualcom: 40% eBay:39%
How does AMD compare to that? Not so well ... Goldman goes on further to discuss the idea that at the rate of burn they are seeing, AMD will have no other alternative than to do some type of equity offering. Of course this will not be taken well by shareholders who will see further dilution of their holdings. I wonder why investors would buy shares anyway, unless they are hoping for a miraculous buyout/rescue.
Although, there the is the odd notion that Wall Street does not seem to care much if companies are in hock up to their eyebrows. In fact, in this market, AMD could actually thrive as investors are giving a pass to many companies with worse news and outlooks. Even so, while you just have to wonder how much worse it can get, I would not be involved here since there are plenty of other names that seem to have a much better outlook.
Disclosure: Horowitz & Company clients do not hold positions of AMD as of the date of publish. BUT, they do have LONG positions in MSFT, APPL and INTC.
Intel Corp. (NASDAQ: INTC) slightly beat consensus: Q1 revenue was slightly ahead ($9.67 billion vs. $9.63 billion consensus). EPS was $0.25, but asset impairment, restructuring charges, and tax rate were higher than expected, so operating EPS was stronger than consensus. June revenue outlook in-line, full-year margin outlook slightly better than expected. Stock up strong in aftermarket.
Key points
Microprocessor and chipset businesses as expected. Microprocessor units lower sequentially, with ASP flat. * NAND revenue flat as significant price declines offset unit growth.
Gross margin: 53.8%, slightly below consensus of 54%.
Tax rate slightly higher than expected: 33.5% vs. 31%, and restructuring and asset-impairment charges $329 million vs. $100 million estimate. Operating income stronger than appears.
Advanced Micro
Here are some highlights from this past week's .gif){kind=logo}
AMD 
Intel Corp.
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