AMD Shares Dive Due To Weakening Economy And Revised Outlook

AMD’s (NYSE:AMD) stock has dipped by more than 40% in since Sept 27 . While stock market has decline broadly, AMD’s slump has been much sharper, primarily exacerbated by its production issues and its higher sensitivity to market movements due to high debt. Its rivals, Intel (NASDAQ:INTC) and Nvidia (NASDAQ:NVDA) also dipped but to much smaller extent. The continued economic weakness in Europe and the U.S. is likely to affect the demand for microprocessors and graphics cards. It seems that the situation is unlikely to go away anytime soon and this could impact the demand in 2012 as well.

Additionally, AMD’s own manufacturing issues are giving it trouble. The company mentioned during its press release that the its manufacturing issues have limited the supply of Llano. ^[1] Llano is critical to AMD’s competitiveness given that Intel’s Sandy bridge has received good adoption. It is unclear whether this situation could extend to Q4 2011.

See our complete analysis for AMD’s stock.

Overall we expect that the current situation, which includes weakened economy and AMD’s manufacturing issues, will lead to reduced market growth as well as reduced market share gains for AMD. Although the market share impact is likely to be short term, weakened demand could impact the company’s couple of years down the line.

Our price estimate for AMD currently stands at $9.90, which is under review in light of this new guidance.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. AMD Announces Preliminary Third Quarter Results, AMD Press Release, Sept 28 2011 [↩]