Re: "IF AMD" and "automatic ESCAPE HATCH"
1) In response to your question, NYSE and SEC regulations prohibit the issuance of guarantees. This has been extended to preclude the use of language that overstates the investment case for any security. Having been a Supervisory Analyst, I'm familiar with these constraints and try to adhere to them even in a private role such as my postings on this thread - it's just good sense. My observation about this thread (more than most of the semiconductor threads on SI that I follow) is that many participants succumb to stating as fact that which is best described as opinion. As a result, there often seems to be more heat generated than light.
2) This qualification is not meant to provide me with an automatic escape hatch. When I issue a recommendation at work for my salesforce to use with our clients (virtually 100% institutional), it is picked up and logged by firms such as Bloomberg or Nelson. Like the clients, these tracking services don't really care about reasons why a stock performs or fails to perform in line with a rating.
This leads to a response to your other post, about being more interested in getting Intel than whether AMD succeeds. I believe that you're mistaken on several counts:
1) I don't believe that anyone wants to "get" Intel. However, due to the way our economic system is constructed, a lot of people would like to have Intel's profitability. This is the way it's supposed to work, with free market forces targeting excess profitability and reallocating resources in order to do so. If you are suggesting that Intel deserves to be left alone so that it can continue to extract extraordinary profits, might I suggest that you seek whatever planet on which that might happen. Otherwise, the only alternative would be a group of commissars sitting around and creating five-year plans for the production of microelectronics (and everything else, for that matter). In fact, that method has been tried, and found a little wanting. Actually, there's another way as well, and it involves goons, threats and swimming with our evolutionary ancestors while wearing heavy footgear, but I trust you're not suggesting that.
2) I'm not pro-AMD or anti-Intel (other than as a consumer/PC purchaser, when it's in my interest to have a non-monopoly). I have the highest regard for Intel. In my opinion, Noyce/Moore/Grove are like the Beatles, where the combination of complementary talents led to creation that was/is well beyond the scope of the individuals. This is in stark contrast to most companies, and it's only proper that AMD be lumped into that category. I can cite Intel's strengths as well as any other analyst. Having written my first investment report on both companies over 20 years ago, I also have a lengthy period of exposure to AMD's history (replete with screwups). But I've also seen Jerry Sanders make AMD a $3 billion company in an intensely competitive environment. Not many other companies have done as well, and a quick glance at the Silicon Valley genealogy chart shows that a lot of other contemporaneous companies have failed to keep pace even with AMD (let alone Intel).
But all of the fundamental analysis means nothing until it's tied into the valuation exercise. The complaint about the use of "if" could be returned with a complaint about the statements of the blatantly obvious - everyone knows that Intel is a superior company, everyone knows that Intel coins money and has made literally billions of dollars over the past twelve months, everyone knows that AMD has suffered tremendous problems so far in its attempts to catch up to Intel, everyone knows that Jerry Sanders is flamboyant and prone to exaggeration and overstatement.
My belief is that all of this stuff is in the stock prices of the two companies, and that the more favorable risk/reward parameter is found in the stock that everyone hates, not the one that everyone loves. If (there's that word again) and when AMD's stock price is sufficiently high to alter the valuation, then I'll be among the first to recognize the change by lowering my rating (in fact, I can almost - but not quite - guarantee you that I'll be lowering my rating just about the time that every other analyst is raising his or hers, since that's how it seems to happen).
I can tell you that it's not easy recommending stocks when the obvious is unappealing, but it's generally when they are the cheapest and represent the best value, so it often tends to be the most rewarding time. When I introduced my coverage of the group last June at Needham, the 100-page report was titled "The Future is Blurred...and Has Never Looked Better." To have been optimistic about the group last summer, and to have had 11 Strong Buys out of 15 stocks last Labor Day was hardly typical, but I believe that time has shown it to have been the right call. To be honest, I find it weird that I had to defend a Strong Buy on Xilinx last June at $15 (split adjusted) and now have to defend going to an Avoid a few weeks ago at $53. My opinion of the company hasn't changed all that much (in fact, it's gotten better), but my opinion of the stock has changed dramatically since its price has. Heck, I took NSM to a Strong Buy on March 12 at $10.5 and people thought I was crazy. But it makes more sense to me to buy it at $11 than at $19 seven weeks later. If it goes up much more, then I'll have to lower my recommendation - and I will.
To sum up, it's all two basic tenets stressed on the first day of business school:
1) Buy low, sell high.
2) The higher the risk, the higher the reward should be.
My observation is that the first rule isn't nearly as adhered to as it should be, and that the second rule is often overlooked. In fact, as someone who continually stresses Intel's favorable characteristics, I would think that part of you would be wondering how long the investment can provide superior returns when the lower risk profile of the company appears to have been well-recognized and probably factored into the price of the security. If you haven't been wondering, then you would be making some really big assumptions (that AMD has always screwed up and therefore always will, and that Intel doesn't screw up and that people will always be willing to pay a premium for that record). Best of luck to you, but I don't care for the odds. - Tad LaFountain
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