So Far, Intel Winning War V. AMD
Thursday February 1, 5:05 pm ET
By Donna Fuscaldo, Dow Jones Newswires
Intel Winning the Wall Street Battle in the Microprocessor War Against Advanced Micro Devices
CHARLOTTE, N.C. (AP) -- Those who invested in Intel Corp. or Advanced Micro Devices Inc. a year ago remain in the red as the two chip giants have engaged in a vicious price war that has hurt margins and scared away investors.
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However, following the latest earnings updates from the companies, Wall Street's sentiment seems to be shifting to Intel and its perceived market advantages rather than Sunnyvale, Calif.-based AMD and its severely depressed stock price.
Investors say Santa Clara, Calif.-based Intel has a lead on AMD in chip manufacturing technology, enabling it to churn out more advanced semiconductors with less costs. Intel bulls also argue the PC industry is facing the potential for a big upgrade cycle, thanks to Vista, the new operating system from Microsoft Corp.
In addition, should the price war begin to ease, Intel stands to benefit more.
"Sooner or later someone is going to say 'Uncle,' and there will be a sense of normalcy over who has the better products, and that's where the pendulum swings to Intel," said William Smith of SAM Advisors, which owns shares of Intel. "Intel crushed AMD, and you can make money in Intel on this entire upgrade cycle because of Vista."
The optimism in Intel is reflected in its stock price, which is up 3.5 percent in 2007 and, at $21, is near its 52-week high of $22.50, set in November. However, the stock remains 19 percent below the $26 level it traded at in January 2006.
AMD shares, meanwhile, have fallen nearly 24 percent in 2007 and are off 62 percent from their 52-week high of $42.70 set in March.
Intel shares closed up 15 cents, or 0.7 percent, at $21.11 Thursday on the Nasdaq Stock Market. AMD shares closed up 22 cents, or 1.4 percent, at $15.77 on the New York Stock Exchange.
Intel and AMD have been fighting for market-share gains in the microprocessor industry. While AMD was able to take the lead, beating Intel to the market with a 64-bit microprocessor, Intel fired back with its own new products and aggressive pricing. While the pricing actions weighed on Intel and AMD's gross margins, smaller AMD's pain has been more profound.
The aggressive pricing has led to a sell-off in both companies' stocks as investors bet both will continue to pursue market share at the expense of margins.
Some investors, though, think Intel can trade in the high $20s and, in the next two years, easily trade in the mid $30s. They say that as Intel's margins improve, more investors will regain faith in the company.
"Intel is really poised to expand its lead over AMD fairly substantially over the course of 2007," said Brian Barish, president and director of research for Cambiar Investors, which owns shares of Intel. "AMD is already about a year behind Intel in terms of process technology."
Barish, who thinks Intel's stock can trade at $28 this year, said the market is also dismissing a new level of innovation in the PC market and demand in emerging markets. According to Barish, while the PC market in the United States is saturated, it's not even close in places like India and China.
"We are very bullish" on Intel, said Barish, noting that the firm just got back into the stock in mid-July.
Meanwhile Philip Durell, a senior investment analyst at Motley Fool, said that given the price war, the only way to invest that makes sense is with Intel.
The analyst said that when there's a battle between a duopoly, typically the company with the bigger muscles wins. AMD may command a technical lead with its chips for servers, but Intel's new products are good enough for most people, the analyst said, noting Intel's ability to cut costs.
Durell, who also thinks the price war will subside, said Intel's stock is poised to climb if the company's margins improve in 2007.
"We love companies that have compressed margins and a long history of success," said Durell. "There's a whole slew of value managers in Intel at the moment, it tells you something."
Officials at Intel declined to comment. Officials at AMD weren't immediately available to comment.
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