Will AMD Be the Turnaround Story of 2013?

amdWith shares of Advanced Micro Devices (NYSE:AMD) trading at around $2.49, is AMD an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

As always, this is an intriguing story. The details might change from year to year, but there is always a lot of drama with Advanced Micro Devices. This has a lot to do with its fierce rivalry with Intel Corporation (NASDAQ:INTC) — and hope. In regards to the latter, the questions is whether or not that hope will ever turn into reality. While the market has been soaring over the past few years, Advanced Micro Devices has been getting crushed. Therefore, unless there is a substantial change in operations, it’s hard to imagine the stock doing well if the broader market trend reverses itself.

Interestingly, Advanced Micro Devices just released earnings that left a lot to be desired, yet the stock is still climbing due to optimism for the future. Q4 EPS came in at – $0.14.

There are two ways to look at this number. If you’re an optimist, then you can say that it beat estimates by $0.06. If you’re a pessimist, then you can say that it was a wider loss year-over-year.

Q4 revenue came in at $1.16 billion, which is a 32 percent decrease year-over-year. FY2012 Non-GAAP EPS came in at – $0.16, and FY2012 revenue came in at $5.42 billion. The latter was a 17 percent decrease year-over-year. However, positives included a Non-GAAP gross margin increase of 8 percent, a decrease in operating costs, and the fact that approximately 1/3 of laptops sold over the holidays use AMD APUs.

That said, the biggest positive was CEO Rory Read offering a JFK-like speech. To summarize, the company plans to evolve its operating model by diversifying its product portfolio to match the current PC environment. There is a big focus on innovation, and today’s investments are also aimed at leveraging distinctive IP to drive growth in ultra-low power client devices, semi-custom SoCs, and dense servers.

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Two comments stood out above all others. One was that the company expects to “transform operations models to business models of today.” The other was more powerful, which was that the company expects to “deliver differentiated and groundbreaking APUs to customers in 2013.” The word “groundbreaking” is the key. A CEO using that word is putting a lot on the line.

Let’s take a look at some important numbers for Advanced Micro Devices before forming an opinion…