jamok99, The main weakness with Charles argument is that
A) AMD is the low cost producer, and
B) it has more cash than Intel, relative to its expenses.
Because of this, a price war will not last more than a couple of quarters, if that long. Since the stock market discounts short term developments, the result of a price was is already factored into the stock price, and the prices may start rising at any moment.
Point A is proved by the fact that Intel's ASP last quarter was about $180 and they achieved a profit margin of 13.6%. AMD, with an ASP of $91 achieved a profit margin of 15.7%. (Both figures are net income before taxes.) This basic fact means that any price war initiated from Intel will 1)result in quarterly losses for Intel before it does for AMD, and 2)will not be successful in maintaining or growing market share. Rationally, it does not make sense for Intel to lower prices.
If Intel acts irrationally, that's where point B comes into play. I'm not going to rehash the numbers here, but Intel's cash position, buttressed by an extremely large accounts payable position, is less than AMD's when adjusted for the size of their expenses. Of course Intel's cash is larger, but its NOT 6 times larger than AMD, the revenue ratio of the two companies. Even, adjusted for AMD's LT debt, which does not have to be paid for XX years, AMD is ahead.
Point B limits the amount of time Intel can suicidally lower prices, if they choose to be irrational.
Yes there are other industries that don't have this short term potential price war scenario in front of them. Unfortunately, the market is already assuming only good news from these industries. The only way to make money in the stock market is to know something that the rest of the market does not yet recognize and is likely to recognize within the next year. As long as
1)points A and B remain valid and
2)most of the world does NOT accept them,
AMD remains a good investment. (2) will not reverse until the stock price goes higher. (1) could reverse if and when AMD's roadmap stops being competitive.
Petz
If INTC has better technology, AMD loses on performance, so INTC does well on pricing and AMD lags behind. In either scenario, INTC holds the trump card - the upshot is that given the dynamics involved, this sector just isn't the place to be, as other places have clearer winning possibilities. Despite the fact that I'm VERY long AMD and slightly long INTC, it's haunting in terms of that the idea makes a fair amount of sense to me. |
