Zacks Analyst Blog Highlights: Abercrombie & Fitch, Advanced Micro Devices, Intel, Hewlett-Packard and Dell.

Business Wire, June 19, 2009

http://www.profit.zacks.com/

CHICAGO -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Abercrombie & Fitch (NYSE: ANF), Advanced Micro Devices (NYSE: AMD), Intel (Nasdaq: INTC), Hewlett-Packard (NYSE: HPQ) and Dell (Nasdaq: DELL).

Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=4579

Here are highlights from Thursday’s Analyst Blog:

Abercrombie Remains Focused

More consumers are trading down to cheaper alternatives on everything from food to staples to apparel, and many continue to avoid buying premium brands. In response, several retailers are lowering prices or shifting merchandise to capture sales from those customers seeking merchandise with lower price points.

This environment has been especially difficult on Abercrombie & Fitch (NYSE: ANF), which is well-known for its premium fashion brands. The specialty retailer is routinely reporting monthly same-store sales in the -20% area. A big reason for the company’s weak results is that management refuses to chase its competitors down the path of lower prices. Abercrombie remains committed to protecting its premium brands while it waits for industry conditions to improve.

Management has acknowledged that the recession could continue to hurt the retailer’s results in the months ahead, but don’t look for the retailer to change its pricing strategy. Instead, management plans to survive the difficult economic environment through expense management, seasonal clearance events, and a fewer new store openings. That strategy includes closing poor-performing stores such as its RUEHL stores, all of which are going to be closed by year end.

AMD Playing It “Smarter”

The "asset-smart strategy," as the formation of the new foundry company is referred to, is expected to enable Advanced Micro Devices (NYSE: AMD) to generate the much-needed volumes of its superior technology products and enjoy the benefits of operating a fabless model. Management focus will now be on developing innovative products.

This is a breather for the company, but a lot depends on execution, in our opinion. AMD is pitted against very strong players, and will have to spend heavily on R&D in order to compete effectively.

The company’s pricing strategy necessitates maximum cost containment and efficient operation in order to generate profits. Although the ongoing inventory correction is heavily impacting profitability, the product mix continues to improve. Management stated that the 45nm server products made a mark in Q408, and most of the products shipped in Q1 were 45nm products. This means that AMD is just a step behind Intel (Nasdaq: INTC), which completed the transition in the third quarter of 2008.

Management stated that it was on track to bring the AMD product company operating breakeven point to $1.3 billion by the end of the current quarter. The asset-smart strategy is expected to play a key role in this regard. There will also be a significant reduction in manufacturing headcount, as the corporate focus is now expected to shift to R&D and marketing.

AMD’s focus on the fast-growing greater China market is paying dividends. The company’s Chinese business has grown in leaps and bounds, with the total contribution increasing from 14.5% of sales in 2005 to 44.0% in 2008, an increase of 201.8%.

According to a survey by Gartner in 2007, AMD captured 28% of the Chinese computing market by the second quarter of 2007. The research firm reported AMD growth across desktops, notebooks and servers. According to the research firm IDC, AMD has secured a very strong position in the desktop segment, which comprises two-thirds of the regional PC market.

The company has also established relations with local leaders such as Lenovo and TCL, as well as global leaders such as Hewlett-Packard (NYSE: HPQ), Acer and Dell (Nasdaq: DELL). According to analysts at IDC, this two-pronged strategy is clearly going as expected, because most of the OEMs are showing an increasing preference for AMD over Intel processors for products being shipped into China.

Want more from Zacks Equity Research? Subscribe to the free Profit from the Pros newsletter: http://at.zacks.com/?id=2649.

About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.