Re: Market Share
I was in Idaho this week for the MU analyst meeting and part of the discussion, naturally enough, revolved around PC growth (and its implications for DRAM demand). IDC figures were cited that put PC unit growth at about 14% for this year and the next three years. With ASP trends, that leads to PC revenue growth of around 5% per annum.
This is desktop/mobile data, and excludes both the higher growth rate of servers and the ability to put multiple MPUs into the servers, so I'm assuming that it understates the MPU unit potential.
But in regard to the recent quarter, the AMD preannouncement that surfaced while we were at MU brings up a question. If AMD shipped 1.2 million units less than plan and not a single PC vendor complained about an inability to get processors, what would have happened if all 5.5 million AMD parts had been made and shipped?
One logical response to this development is that the investment case for Intel is (not wholly, but substantially) dependent upon AMD having additional screw-ups going forward. After all, an additional 1.2 million AMD units at the planned speed mix would have not only reduced the available sockets to INTC, but would have probably led to a reduction in INTC ASPs for those parts.
Of course, an overwhelming strength for INTC is the high-end where AMD has not been any competition - potential or actual. Seeing the pricing on Xeons with the price increment of $1K for every 512KB of SRAM is a strong indication of how much profit is being extracted from the server customers (figuring the gross margin on the custom SRAMs in those modules must have the CYs and IDTIs of the world just drooling). So, while current market share considerations are obviously very important, the implications for the projected AMD product roadmap with the potential to affect the high end are, I believe, even more important.
If I understand them correctly, the key issues surrounding AMD's stock boil down to execution and management credibility. I have a much easier time understanding disappointments arising from the former than the latter. Therefore, I find last week's announcement a source of substantial disappointment, since I believe that it more reflects senior management's inability to discern the scope and nature of the problem than the problem itself (even recognizing the probable subtleties of the design/manufacturing challenges).
What does this mean going forward? I continue to believe that AMD is likely to pick up share as a result of the product roadmap. It could very well be that any such gains will face a tremendous discount from investors due to the credibility issue. From the share price perspective, this means that 1Q screwups are likely to have a longer term effect on the stock due to psychology than actual financial implications.
How much of this is reflected in the current stock price? I tend to believe that most of it is likely to be. Once again, INTC's market capitalization is in excess of 100 times that of AMD's. Does this appear warranted? Possibly. Is it likely that the ratio is never reduced? Probably not. Does that represent investment opportunity? Given the factors of the situation, it's probably more accurate to refer to it as speculative opportunity.
But it sure seems like an attractive speculation, despite CPQ's announcement. - Tad LaFountain |
