Hello John,
Interesting article found at stockhouse.com
A shortage of microprocessors has Advanced Micro Devices gaining market share over major rival Intel. The recent release of AMD's Duron chip has Wall Street expecting it to surpass Intel's Celeron and for shares to reach new heights.
Toronto, ONT, June 26 /SHfn/ -- It's no secret that there has been a severe shortage of microprocessors. The growth of PC sales, increasing Internet usage and the rapid pace of chip innovation has fueled demand for low-cost, high-quality PC microprocessors.
The Semiconductor Industry Association projects revenues for semiconductor sales to be $174 billion in 2000, an increase of over 20% from 1999. Dataquest, a division of leading consulting firm Gartner Group, expects a more optimistic scenario with sales of $222 billion in 2000, projecting a 53% year-over-year increase. Hans Mosesmann, an analyst at Prudential Securities, believes that demand will remain strong over the next two to three years. "What we have right now is a situation of overdemand," argues Michael Pocsatko, director of marketing and capacitors at Epcos AG. Pocsatko describes the extent of the excess demand by noting that many of his customers "are having to buy from distributors and are paying higher prices." The supply of processors is so tight that it is limiting system shipment in certain cases.
The decline in inventory levels yields opportunities for firms like AMD, who have the capacity to meet the unprecedented demand. "Inventory levels have declined across the industry to levels of two to four weeks versus nearly three months at the peak," according to a report recently released by Lehman Brothers [LEH] hardware analyst Daniel Niles. Lehman has an "Outperform" rating with a one-year price target for AMD at $100, while ING Barings analyst Peter Wolff has one-year target of $120. The shares closed today at close to $88.
AMD's recent release of its Duron microprocessor has the confidence of Wall Street analysts, who expect it to surpass Intel's Celeron chip.
Although Intel [INTC] has been the leader in the semiconductor industry, commanding well over 85% global market share, Advanced Micro Devices [AMD] has been gathering momentum in the PC market since last August when it released its Athlon chip. Partially through the introduction of Athlon, a high-end microprocessor chip, AMD has increased market share in the consumer PC segment. The growth in market share over its rival Intel in this sub-segment could very well cause AMD shares to reach new levels, with the growing popularity of the low-end (less than $1000) consumer PC market. Intel's increasing focus on the high-end server, notebook, desktop market combined with its limited production capacity has created opportunities for AMD to further penetrate the consumer market. As Intel has moved towards the higher-margin, corporate segment, AMD has infiltrated consumer PC systems at major OEMs. AMD's recent release of its Duron microprocessor has the confidence of Wall Street analysts, who expect it to surpass Intel's Celeron chip.
The stock price has demonstrated resiliency throughout March's market bloodbath, increasing 68%.
AMD's Duron has some important differentiating features, unique elements that are expected to set it well ahead of its competitors. Duron features a 200 MHz system bus, the main conduit between a processor and the rest of a computer. In contrast, Intel's Celeron comes with a slower 66 MHz system bus. In addition, the Duron architecture has lower manufacturing costs, and can be placed in smaller, less expensive packages. From a manufacturing perspective, most of Duron is made with copper, instead of the traditional aluminum circuitry. Copper has the advantage of conducting electricity better than aluminum, making the chips run cooler.
Kevin Krewall, an analyst at Micro Design Resources, believes that the Duron chip is a "combination of the system bus, the larger amount of cache, the floating point unit, and the newer architecture?it is a pretty cool product." Officially released on June 19, the Duron microprocessor chip will run at speeds ranging from 600 MHz, 650 MHz, to 700 MHz. On June 26, Intel is expected to release its own low-end processor, Celeron, running at speeds ranging from 633 MHz, 667 MHz, and 700 MHz. Duron will be run mainly on low-cost PCs ranging in price from $899-$1,199. Compaq [CPQ], accounting for 15% of AMD's sales, is expected to be the first major customer in the US to ship personal computers with the Duron chip. The market is not limited to the US, as other companies like Fujitsu-Siemans are vying towards the European market in preparing their own Duron-based PC architecture.
The stock price has demonstrated resiliency throughout March's market bloodbath, increasing 68% between March 10 and April 30, while the NASDAQ composite declined 24% during the same period. As more and more money flows are being directed into the chip sector, improving market conditions are expected to take the stock higher. Institutional money managers are loading up on the shares. AMD comprises 4.1% of multibillion-dollar portfolio Janus Strategic Value Fund.
Surpassing Intel in a sub-segment of the chip market is no small feat. The time is ripe for purchase of AMD shares.
Love that last line!
Kindest regards,
CrazyMan |
