Analyst: PC Weakness Too Much For Advanced Micro Devices

In a report published Friday, Ascendiant Capital Markets analyst Cody Acree downgraded shares of Advanced Micro Devices, Inc. (NASDAQ: AMD) to Hold from Buy with no assigned price target (previous price target was $4.50) following its first quarter results.

"Following Intel Corporation's negative pre-announcement, we believe the Street was largely prepared for AMD to echo a similar cautious view of the global PC environment, as the market returned to secular decline and channel inventories contracted ahead of this summer's Windows 10 launch," Acree wrote. "While this scenario was likely already reflected in AMD's stock price, we believe computing and graphics share loss, combined with game console revenue decline and a lack of server traction is likely to keep AMD's share range bound, at best, until growth drivers become more identifiable."

Acree said the company is still "largely" tied to the declining PC market and losses are likely to continue until at least the second half of 2016. The analyst added that AMD's gross margin and leverage will likely be constrained as the company's semi-custom business will only support modestly higher margins as pricing declines meet console volume increases.

Finally, Acree noted that AMD did not provide revenue guidance for full-year 2015 but does expect sales to be seasonally back-half weighted, optimistic that the launch of Windows 10 will result in a channel inventory normalization.

The analyst lowered his revenue estimates to $4.28 billion from $4.57 billion, while trimming his earnings per share from $0.01 to a loss of $0.24, while introducing a fiscal 2016 revenue estimate of $4.53 billion and losses per share of $0.05.