Why the AMD Stock Upgrades?

"ThinkEquity analyst Eric Ross, who boosted the stock from "sell" to "buy." Ross lifted his rating based on what he said appear to be strong orders from Dell ..."

AMD is receiving upgrades from different analysts in the past few days, mostly from a “Sell” into a “Buy" rating. This should be pleasant to hear for a few AMD fans, particularly the hypocrites who have the tendency to believe analysts only when they have something good to say. The positive news this time focuses on AMD’s inventory which appears to be on a recovery. While this may be one good step away from AMD’s quagmire, it isn’t out of the woods yet. A stock upgrade can make sense considering how much it was beaten down from its 52-week high.

The issues AMD reported last quarter was primarily about lower ASPs and significantly lower volume sales. With such problems, easing of inventory does not necessarily point to a recovery. In fact the opposite occurs whenever inventories are cleared. ASPs fall further to move products quickly and shipped volume decline to allow time for market consumption. In fact, one can assume that this is precisely what we saw last quarter as AMD ‘allegedly’ stuffed the channel in Q4’06 and suffered for it the next quarter. AMD may be genuinely on the path of inventory recovery this quarter as its last guidance points to a flat to slightly better Q2. AMD should see more stability in pricing and customer orders from here on. This is definitely good news for AMD but the nagging reality of low ASPs and low volume remains. We all know what AMD needs to do to correct this and rumours of delays, bugs and lower speed bins doesn’t sound very encouraging for a possible upside.