AMD has been working out well as you and I have commented on the past few month--Seymour on AMD---
AMD Clobbering Intel, and It's On the Merits
By Jim Seymour
Special to TheStreet.com
3/22/01 10:59 AM ET
A couple of days ago, comparing it to an investment in Linear Technology (LLTC:Nasdaq - news - boards) for those who feel they have to be long some kind of tech, Jim Cramer praised Advanced Micro Devices (AMD:NYSE - news - boards) as a superior buy, a company "taking huge share from Intel (INTC:Nasdaq - news - boards) and [which] ... seems like it is on about as good a roll as you can get in this industry."
And then again Wednesday, Cramer talked about AMD. "AMD has lowered expectations, a great balance sheet (that is about to get better when it calls its convertible preferred), a billion bucks in cash, a buyback for 4% of its shares and a series of products that is stronger than Intel's by a series of important benchmarks ... more important, it is worth more than it is selling for..." That kind of stuff.
But both times, he stopped short of where I thought he was going: a flat-out recommendation to buy AMD now. He's not yet ready for that, he says; he thinks you can buy AMD a little cheaper in a little while.
So I'm going to have to make that recommendation myself.
I think AMD is one heck of a buy now, especially viewed up against the travails of its head-to-head competitor, Intel. Yes, it may get a little cheaper, but I'm not willing to wait, lest I lose any more interim profits. Waiting for a $20 AMD share price is a game I don't want to play. AMD has closed over $20 every market day since Jan. 17, and while it may yet drift down below an AndyJ, I don't see that.
The mojo's still working: AMD closed up 86 cents, or about 4%, at $23.29 Wednesday.
Background: Right now we have a huge tug of war under way between Intel and AMD for the soul of the PC industry. Some may argue that that's a depressing, soulless place right now -- but it's still a fat and profitable market for microprocessors, if not quite as fat as we thought it would be about now.
Intel's still winning overall on volume -- and that isn't going to change -- but over the past two years, and especially over the past eight months or so, AMD has grabbed a big chunk of the PC CPU market. And that was a slice of market-share Intel very much did not want to lose.
There's some interesting history here. Back in the early days of personal computers, Intel was duking it out with other CPU makers to control the market. It bested the Z80 from Zilog, and the 16016 (and others) from National Semiconductor (NSM:NYSE - news - boards). Then, standing astride the market, it allowed a little AMD in as the "second source" maker of the "x86" series chips -- the ones powering IBM PCs and IBM clones -- up to and through the 80286.
In those days, no self-respecting PC maker would choose a new chip design that was available from only one company. There was just too much risk of production interruptions, chip-design flaws, etc. So chipmakers chose a production partner, and licensed to them the right to make the chip, too, thus providing OEM (original equipment manufacturers) customers with a second source in case of problems. But Intel decided it didn't like giving up any market share to AMD, though, and both cut AMD off (yes, there was big litigation), and bulled it through with PC makers to shut up and accept Intel designs as single-source CPUs. It was brutal ... and it worked. That was one leg of the vast success Intel has enjoyed since the mid-1980s.
AMD, meanwhile, became The Gang That Couldn't Shoot Straight in the CPU business. New design after new design, all promised to be x86-compatible, and of course faster and cheaper, was announced by AMD. But something always went wrong: chip-layout errors, underperformance, problems in the AMD fab plants, poor production yields. It was awful, right through the so-called AMD K-5 design.
Finally, with the K6, and now especially with its high-end Athlon line and lower-end Duron line, AMD got it right, and has been walloping Intel.
Virtually every major PC maker, except Dell (DELL:Nasdaq - news - boards), uses AMD chips in some of its machines.
Lots of people on Wall Street think what has happened with AMD's success over the past year-plus has been luck, or good timing. Phooey. AMD has been earning design wins on merit.
I know three ways to judge chip performance: By absolute performance (my chip's faster than yours); by absolute price (my chip's cheaper than yours); and by price: performance analysis (at any given price, my chips outperform yours).
Brutal but true: AMD has been winning on all accounts. Its Duron CPUs, positioned against Intel's Celerons, blow them out of the water. PCs built around the AMD 800 megahertz Duron are the value kings in the PC marketplace right now -- fassssst, and cheeeap. PCs using the high-end Athlons trump similar but more expensive machines built around same-speed Intel Pentium IIIs and Pentium 4s... and indeed, a lower-speed AMD Athlon often beats a theoretically higher-speed Intel chip.
And AMD has done a good job on production and pricing. It meets delivery schedules, and prices these chips well under comparable Intel units.
Again: AMD's winning on the merits, not on luck, which suggests that this is not going to change much, at least not soon.
We've often talked on RealMoney.com and TheStreet.com about separating analyses of a company's business and that company's stock. I have to do that here, too. But the winner's flag stays in the AMD slot: Not only do AMD's CPU products beat Intel's, at a lower price, but AMD's business operations have been edging Intel.
Stock prices? Intel has been edging down around $25, recently suggested as a bottom by analysts. Since mid-January, Intel's been creeping its way down from the mid-$30s to the mid-$20s.
Meanwhile, AMD has been squirming up, holding between $20 and $25 since January.
Intel's P/E tops 16; AMD's is between 7 and 8.
Which would you buy? Right.
I think AMD's going to hold on to its current strong position, both vis-a-vis Intel in the marketplace and in the stock market, as well, for at least another year.
Intel, stuck with an expensive, hard-to-build, low-yield and unpopular Pentium 4, which boxmaker-OEMs don't like and PC buyers don't want, will correct its mistakes by 2002. I expect to see a new, cheap, fast Pentium 4. And of course Intel will wield the competitive axe of price cuts on slower Pentium 4s and especially on all Pentium IIIs, as it gets Pentium 4 problems worked out.
But AMD's got one heck of a window between now and then. And it's shown it knows what to do with that window.
I think AMD's a buy now, Jim. No need to wait any longer.
Of course, you may not want to be in tech at all right now. So readers should consider AMD the way Jim presented it in that comparison to LLTC: a buy if, and only if, you think you have to hold some tech. |
