I Give Up On This Zombie Stock!

Anders Bylund, The Motley Fool
Updated

Advanced Micro Devices (NYS: AMD) just reported a disastrous third quarter. How bad was it? Let me count the ways:

  • Sales plunged 25% year over year, but we knew that already.

  • The year-ago period's $0.15 of non-GAAP earnings per share morphed into a loss of $0.20 per share.

  • AMD had to write off $100 million of chip inventory that nobody wanted to buy. AMD isn't fixing this by working harder to create great products. The company is running in the opposite direction by...

  • ...firing 15% of its workforce in a cost-cutting panic. The new goal for operating expenses is to break even at quarterly revenue of roughly $1.3 billion, and it'll take about four quarters to get there.

Just to rub salt in the fresh wound, rumor has it that AMD's guillotine will fall in exactly the wrong place, with most of the cuts coming from the engineering department -- the one place where AMD could save itself by investing more and getting better.

Say it ain't so!
I hope that rumor is totally false. Sadly, it seems like exactly the thing a purely financial dude like CEO Rory Read would do. Predecessor Dirk Meyer was an engineer himself, and would never have gotten AMD into this unholy mess.


Look, bad things happen to good companies. But the great ones roll up their sleeves and fight back. AMD's cost-cutting instinct reminds me of a zombie's fixation on brains.

It's the exact same approach that set Hewlett-Packard (NYS: HPQ) on a long, slow road to the middle of nowhere. Circuit City took a similar wrong turn years ago, and we all know how that story ended. I could go on, but you get my drift: You can't cut your way out of trouble when nobody wants what you're selling in the first place.

AMD gives up on life? I give up on AMD.
Rory Read wanted to reassure investors that everything will be all right when he cuts enough corners. I just started a very, very bearish CAPScall on AMD, because this report only underscored how doomed this company is.

Innovation may not be quite dead at AMD quite yet, but Read is going after it with a double-barreled shotgun. Intel (NAS: INTC) will win the PC and server processor wars after all these years. NVIDIA (NAS: NVDA) is losing its only rival in the graphics game. A healthy AMD might one day have made its way into the mobile market, but sector leader ARM Holdings (NAS: ARMH) won't have to worry about that anymore.

AMD might go looking for a buyout and the innovative technology it developed in recent years would be worth a pretty penny to the right buyer. But the execution side of the house is falling to pieces. Barring a buyout miracle, this stock is going to zero. AMD is dead, and just doesn't know it yet.

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The article I Give Up On This Zombie Stock! originally appeared on Fool.com.

Fool contributor Anders Bylund has no positions in the stocks mentioned above. Check out Anders' bio and holdings, or follow him on Twitter and Google+. The Motley Fool owns shares of Intel. Motley Fool newsletter services recommend Intel and NVIDIA. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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