Amy: re Dialogic acquisition
A couple of points about this:
1) I was taught that an acquisition should involve a target with either higher growth or higher margins. Intel has a very difficult time finding companies with higher margins (at least companies engaged in legal activities). So the focus should be on growth. As Intel increasingly focuses on communications activities, it puts semiconductor analysts such as myself at a disadvantage, since it's unlikely that our understanding of the new market matches our understanding of the semiconductor business.
...This can lead to what I call the Motorola effect. I believe that for a long time, MOT was given an undeserved multiple because the semi analysts that covered it recognized it as an underperformer in the semi market, but felt that it was a leading communications company, while the comm analysts saw MOT getting creamed by Nokia, Lucent and Ericsson, but understood that is was one of the largest and most respected semi companies. Eventually, the dismal performance was too significant for anyone to ignore and the valuation came back to reality.
...I don't see the appeal in Dialogic that leads to a substantial premium above a market price during a period when equities in general are enjoying historically high prices. Your comment about relative potential compared to T-bills is appropriate, but I believe that another issue is comparing Dialogic to Intel's own stock that had pulled back 20 points from its own high. Management's action either indicates that (a) a 25-30% premium to the market still leaves a less-than stellar communications company's stock more attractive than its own; or (b) there is some remarkable synergy resident in the situation that justifies such a premium. If I were an Intel shareholder, the first position would leave me a little queasy, while the second position needs to be placed against Intel's track record in terms of efforts made afield of the MPU business (and let's acknowledge that the track record is mixed).
...Hence, I conclude that the acquisition raises as many questions as it "answers."
(2) Your comment about the downside risk is certainly valid, and I concur with your assessment (which is why I mention the risk of an AMD investment when I write reports on it and suggest that it is not appropriate for accounts where such risk may lie outside their parameters). Not mentioning it in my post was not intentional, but perhaps ill-advised. Mea culpa.
(3) However, I do believe that risk is greatest when most are willing to ignore it or even believe that it doesn't exist. That is to say, stock prices are often highest when people believe that something is a lock for a whole bunch of blatantly apparent reasons and that alone is sufficient to create equity risk. Conversely, risk often is lowest when everyone is focused on problems and dangers.
...If AMD hits my target price (now $42), I won't be patting myself on the back (per Paul Engel) - I'll be talking about the increased risk in the shares. It's unlikely that I'll mind having to do so. - Tad LaFountain |
