Albert,
Ok, when you make your comparison, you have kept Company A (which I assume is Intel) in a relatively tight collar of 50-60% GMs whilst Company B has a loose collar of -40% to 40% Gms. (I also assume that Company B is AMD).
First, if my assumptions are, in fact, correct Company B/AMD never had -40% GMs.
Secondly, while I agree with you that management of both companies are trying to maximize shareholder value, the question should be, when stocks are priced at some moment in time, what are investors expecting?
As investors expecting GMs for company A to be 60+%? Are investors expecting GMs for company B to be 40%?
Next you make additional assumptions:
6) cost of production of the products are similar
7) company b 1st time gained some brand recognition
8) company b still keeping margins low so that the market share is increasing
I disagree with point 6. With respect to point 7, it depends on you definition of "some"; however at what cost did company b receive this "brand recognition". With respect to point 8, you are assuming that company b can supply that delta in market share.
History should teach us many lessons about the price war between AMD and Intel. When there is a price war, AMD looses money and Intel doesn't make as much money. That is not necessarily a "win-win" for investors of either company. Remember, AMD has more debt than Intel since AMD is more leveraged. Look at this ratio Total Debt/Equity.
Additionally, remember, one cannot compete on price alone. This has been shown time and time again.
Its not like AMD hasn't had its share of chances to take considerable market share from Intel, i.e. K5, K6. If AMD had succeeded, that would have been a relatively "inexpensive" way to take market share; however, using a price war to take market share is essentially "cutting ones nose off to spite their face" and its very expensive.
If you choose to invest in AMD, which I personally believe AMD is a good trading vehicle (not investment), AMD has to wait for Intel to "drop the ball" then, as an investor, you have got to hope that AMD can execute.
I personally believe that AMD is a "me too" type of company, or as defined in the "Gorilla Game" a "chimp". AMD must find ways to differentiate their product offerings from Intel. Of course, and I've made this statement before, I believe that a Media Gx-type processor could effectively do this. It appears that AMD is attempting to go this route, but AMD continues to battle a larger, formidable competitor "head on" rather than use "finesse"
If AMD continues being "bi-polar" in their corporate strategy, I, for one, do not forsee AMD being a viable company. |
