Tim MacEachern (lurker) sent me this article:
The Globe and Mail (Toronto) Tuesday, October 30, 2001
"VOX" column, lead item, page B13
Writing on wall suggests it may be time to short AMD
AMD and archrival Intel are locked in a death spiral, and Intel will be on top when they hit the pavement.
Owning AMD in good times was a delight for investors. From 1999 to 2000, for example, the chip maker's revenue grew 64 per cent to $4.6-billion. Its operating results rose to a profit of $890-million from a loss of $320-million, which hints at the leverage. Intel's revenue growth was 15 per cent, while its profit rose about the same.
But just as leverage is a good thing in good times, it's bad in bad times. So far this year, AMD's revenue is down 15 per cent to $2.9-billion. Its operating results are down 90 per cent.
Intel's having a tough time, too, with revenue off 35 per cent, compared with last year. But with higher profitability, you can absorb some aggressive price-cutting without tripping into the bad. Although Intel's operating margin is down to 6 per cent from a prior three-year average of 32 per cent, it's not losing money.
AMD is unlikely to be profitable this year, which will make 2001 the third year since 1998 that it loses money from its core business. (Intel, despite the falling margins, has been solidly profitable throughout the period.)
As the personal computer market continues to weaken, so will AMD's results. AMD is severing limbs and parting with employees. But such a research-and-development-intensive business needs scale, and as it downsizes, so do its prospects. It looks like a good short from here.
----- stock price on the close before the article was written: $9.56
Joe |
