Evaluation Of AMD Financial Performance Case Study Examples

Published: 2021-06-22 00:39:24
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This paper is a financial report that gives an evaluation of AMD financial performance for 2008, 2009 and 2010. In the report are the analyses of the company’s financial performance using conventional financial indicators and financial ratio trends. The report also gives an evaluation of the stock performance of the company for the same period. Finally, there are recommendations of the possibility of High Technology Company entering into a long term contract with AMD.
AMD
AMD stands for Advanced Micro Devices. It is a company that sells and designs digital integrated circuits, abbreviated as ICs. The company’s products also include embedded microprocessors for consumer and commercial applications, chipsets for computers and x86 micro-processors. As AMD was, over the last couple of years, focusing on the idea of integrating its non-microprocessor investment, its much bigger competitor, Intel raised its technological performance. This made AMD to lose some market share. This lose would only last until a management reshuffle in 2008. Following this shake up, AMD employed a notable expense and cost restructuring and went back to refresh its product lines, graphic technologies and microprocessor. This has made AMD to win approximately twenty percent of the microprocessor market (Negash 52).
History
In March 2009, AMD made the decision of spinning off its manufacturing activities to establish a foundry joint venture. The venture was named GlobalFoundries. It was between AMD and an Abu Dhabi investment company called Advanced Technology Investment Co. the deal was very favorable since it gave AMD the necessary financial flexibility for focusing on its key competencies of selling and designing semiconductors without investing billions of dollars in equipment and plant to match with Intel (Graham & Smart 28).
The AMD’s empire rose until 2007 when it begun crumbling. In 2008, it was worst. In 2007, sales rose about 6%. In 2008 however, the sales fell by 3%. During these two respective comparable periods, Intel witnessed an 8% growth and a 2% drop. AMD performance was therefore, weak considering the fact that the company was such smaller competitor with its top-line results including revenues from its partner, ATI Technologies. The net losses that AMD suffered in 2007 and 2008 were $3.38 billion and $3.10 billion, respectively (Negash 52).
In the price war between the company and Intel, AMD has been on the losing end. The chips in the company were inferior. This reduced the sales to more profitable, higher-end computer markets. There were also no manufacturing process technologies in AMD enabling Intel to minimize per unit costs. AMD then experienced erosion due to lower costs from the competitors. This experience led the company to experience margin compression. These issues, when combined with distribution problems and ATI acquisition led to a gross margin decline from 50% in early 2006 to 20% in 2008. The weak profitability compelled the company to raise capital via equity and debt to support capital expenditure and working capital needs. AMD however, did not fall off completely. It was able to keep some share mainly in the lower-end microprocessor markets. That is why its desktop microprocessor space’s shares, which often have smaller price points compared with server and mobile markets, rose from 28% in 2007 to 29% in 2009.
Financial performance analysis
Qualitative analysis
In this case, the operating performance of the company during an industry downturn can be a very good indicator that tells the ability of the management to weather storms. The performance of the company in relation to its competitors is also a very important key. It is common for business leaders to utilize a decline in the conditions of the business in streamlining operations and focusing on new product offers. Through such activities, the company gets positioned for a chance to outperform its competitors when there is the next up-cycle (Prigent 97).
On evaluating the way sales of a company by end product and geographical region, it is possible to understand the overall performance of the company. In our case, the important customers for the AMD Company are the companies producing such items as car electronics, computers and cell-phone handsets. This is because these products go hand in hand with the company’s chips (Moyer 48).
Financial Strength
Business risk is important in evaluating the company’s financial strength. Insolvency rarely comes to financially strong companies. The debt to equity ratio is used for measuring the leverage of the company. From the spreadsheet, the debt to equity ratio is decreasing from 6.56 to 2.16 to 0.96 compared with the industry’s ratios, which are increasing from 30.6 to 32.1 to 36.3 respectively from 2009-2011. This indicates the company’s aggressiveness in using debt to finance its growth is decreasing relative to that of the industry. Therefore, the company has less debt to finance giving it chance to concentrate on profit-making ventures (Graham & Smart 28).
The current and acid ratios are on average 1.93, 2.15 and 1.82 compared with the industry’s 20.4, 18.4 and 23 from 2009-2011 respectively. Since they are decreasing in AMD and increasing in the industry, it means the company is becoming more liquid with the no trouble of paying debt while the industry is becoming less liquid with more debt repayment trouble (Negash 52).
Considering the company’s Account receivable turn over, it is clear that there is trouble in the company in debt collection. Consequently, the account receivable turns over rose from 8.21 to 19.5 to 18.55in the company. With this relatively increasing account receivable turn over, it means that the company is effective in giving credit, while ineffective in debt collection (Tadele 44).
The inventory turnover reflects the frequency of flushing inventory from the system. From the spreadsheet, the inventory turn over of the company is rising from 5.12 to 5.89 to 6.55 while that for the industry is fluctuating from 7.9 to 11.6, then to 8.4 in 2008-2010. This implies that the company is in a better position of managing the inventory properly compared with the industry (Moyer 48).
Profitability
This is used for measuring effectiveness of in using assets and managing operation. Profit margins refer to money remaining after settling all the costs used in operating the business. When the net profit margin is higher, this translates to a higher return on equity. In our case, the net profit margin is rising from 5.63 to 7.25 to 7.48 compared with that of the industry, which is fluctuating from 1.1 to -1.7, then to 4.3. This means that the company is profitable enough to for the HTC to enter into a contract with it. The return on investment in the company is increasing from 6.01 to 10.9 to 13.95 while that of the industry is fluctuating from 0.3 to -1.1 to 3.6 in 2008-2010 respectively. This further illustrates the company’s high profitability against the industry’s low profitability (Tadele 44).
AMD's stock price performance for the period 2009, 2010, and 2011
Regarding AMD’s stock price performance recorded in the period 2009-2011, it is clear that Advanced Micro Devices has, for the first quarter, reduced its revenue guidance. This came up due to weaker demand, which went beyond the expectations, in the consumer notebook market in North America and Western Europe. In the September interim, the estimates of the company is that there was a top line reduction from 1%-4% as compared with the June period. Previously, the AMD projection indicated a seasonal rise in volume (Posthumun , Basson & Olivier 76).
In terms of shares a $0.11 a share profit was replacing a $0.49 net loss. The company still expected their operations to rise again for the full-year 2010 despite their current slowdown. This rise would come following the expansion of volume and improvement in factory utilization. They were estimating about twenty percent revenue rebound following the seven percent decline seen in 2009. The new products for graphics and microprocessor sectors were driving the top line. In 2010, the company’s earnings target was $0.40 for each share as compared with the $1.42 operating loss experienced in the previous year (Weaver & Weston 120).
On the other hand, the company anticipated a moderate gain in profits in 2011. The basis of this anticipation was a prospective modest rise in sales. There were plans among more computer manufacturers to use chips from AMD in their new computer products. Recently, the company demonstrated its Fusion Accelerated Processing Unit (APU). This is a combination of a graphics processor and a microprocessor on one chip. Consequently, these neutrally ranked speculative shares have high capital appreciation capacity over the time frame of 2013-2015. In conclusion, AMD stock would be appropriate only for investors having a high tolerance potential for risk (Koenig & Dengel 38).
DuPont analysis
DuPont analysis focuses on Return on Assets. It helps in the development of the way assets have been used effectively. Therefore it is used for measuring combined effects of asset turn over and profit margins
ROA=Net Income/Sales x Sales/Total Assets=Net income/Total assets
On the other hand, return on equity ratio (ROE) measures the stockholders’ rate of return. Therefore, DuPont analysis decomposes ROE into different factors that influence the performance of the company. For instance:
ROE=Net Profit/Equity
In our case, the ROE for the company is 107.42, 56.71 and 37.73 respectively for the years 2009, 2010 and 2011 respectively compared with 1.9 -0.1 and 5.8. This means that even though the ROE is decreasing, it is higher compared to that of the industry. Therefore, the profitability of the company is still good
Profit margin is (Net profit/Sales)
Recommendation
The business environment, like many technology areas is subject to unanticipated and rapid changes besides being very competitive. Therefore, the management teams of many firms are faced with significant challenges courtesy of the dynamic business climate. Therefore, there is need for companies to adapt quickly to the industry conditions, which are ever evolving (Helfert 74).
Works Cited
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Wiley & Sons, 2007. Print.
Bragg Steven. Financial Analysis: A Controller's Guide. New York: John Wiley & Sons, 2006
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Graham John & Smart Scott. Introduction to Corporate Finance: What Companies Do, Abridged
Edition (with Economic CourseMate with EBook Printed Access Card and Thomson
ONE Business School Edition 6-month Printed Access Card). New York: Cengage
Learning, 2011. Print.
Helfert Erich. Financial Analysis: Tools and Techniques : A Guide for Managers. New York:
McGraw-Hill, 2001. Print.
Koenig Andreas & Dengel Andreas. Knowledge-Based and Intelligent Information and
Engineering Systems, Part II: 15th International Conference, KES 2011, Kaiserslautern,
Germany, September 12-14, 2011, Proceedings. New York: Springer, 2011. Print.
Moyer Charles, McGuigan James, Rao Ramesh & Kretlow William. Contemporary Financial
Management. New York: Cengage Learning, 2012. Print.
Negash Yohannes. Financial and Operational Performance Analysis. New York:VDM Verlag
Dr. Mueller e.K., 2011. Print.
Nicoleta Barbuta. Analysis and Modelling of the Financial Performance of the Enterprises. New
York: Lambert Academic Publishing, 2010. Print.
Posthumun L. , Basson N. & Olivier P. Principles of Financial Management. London: Juta and
Company Ltd, 2000. Print.
Prigent Jean. Portfolio optimization and performance analysis. New York: Chapman &
Hall/CRC, 2007. Print.
Tadele Haileslasie. Financial Performance Analysis of Multipurpose Cooperative Societies.
London: Vdm Verlag Dr Muller, 2010. Print.
Weaver Samuel & Weston Fred. Finance & Accounting for Non-Financial Managers. New York:
McGraw-Hill Professional, 2004. Print.

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