INTC priced itself out of the European mkt
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Advanced Micro Devices Inc. (NYSE:AMD), the first viable threat to Intel's (Nasdaq:INTC) role as King of the semiconductor arena, is poised to trounce Wall Street's EPS estimates on Wednesday. In anticipation of strong third quarter growth, the WhisperNumber stands at $0.67 per share - a clear sign that investors are bullish for the Sunnyvale, CA-based company. Analysts expect modestly lower earnings of $0.61 per share, in line with the results of the previous quarter and more than a nickel below WhisperNumber.com's forecast.
Although institutional ownership accounts for 89% of AMD's float, investors' expectations have historically determined the course followed by its stock price in the period immediately after the release of a quarterly earnings report.
For the past few weeks, shares in AMD wallowed in the mid 20s, down sharply from their 12-month high near 50 on a wave of profit warnings that rocked Wall Street. Intel triggered the sector's partial collapse in mid-September, warning investors that sluggishness in the European market will depress its top line growth for the current period.
Analysts apparently chose to ignore numerous assurances made by AMD throughout the quarter that it remains on track to ship its goal of 3.6 million Athlon and Duron processors - twice as many chips as in the prior quarter. In their typical lemming-like fashion, a handful of so-called investment professionals took the plunge, jumping on the bandwagon and downgrading the weakened AMD.
Sudeep Balain took one of the first swings: the Chase Hambrecht & Quist analyst lowered his 12-month price target on the stock to $35 a share, less than half its original level of $75, and slashed his rating to market perform from strong buy. In a research note to clients, he also said that, while the company's third quarter is "intact," because of Intel's pending revenue shortfall, he cautioned that AMD's stock "will continue to be under pressure in the short term."
Deutsche Banc Alex Brown was next to chime in: Analyst Erika Klauer downgraded shares in AMD from buy to market perform and reduced the stock's 12-month price target to $30 from $60 in the wake of Intel's announcement. As she explained in a recent research note, "we do not believe AMD has been immune to the ill effects cited by Intel in Thursday's pre-release," since the two companies compete in the same market. The analyst also turned bearish on 2001, voicing concern that, "Intel's efforts to more rigorously defend market share and more players, particularly in the mobile space," will undoubtedly subject AMD to heightened competitive pressures in coming months.
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Danny Lam of FHI Research, however, bucked Wall Street's Conventional Wisdom, arguing that Intel's problems are specific to Intel. He maintained that Intel's supply constraints - evidence of strong demand according to most analysts - are instead evidence of production bottlenecks caused by the company's wafer stepping machines. Used to link discrete components on a microchip, these machines impose a ceiling on Intel's production capacity, which - Lam argues - eventually led to the company's decision to weight its product mix in favor of higher-margin, more expensive Pentium III processors, and away from its low end Celerons.
Consequently, according to Lam, Intel effectively priced itself out of the European market, where weak currencies have systematically decimated the purchasing power of consumers and businesses. Thus, AMD was free to reign the henhouse in its absence, stealing market share from its rival and picking up slack demand with its own chips, which sell at sharply lower average prices than the competing products. .
Needham & Co. analyst Dan Scovel appears to agree, suggesting that Intel's woes were caused by more than just demand weakness. "Part of the problem [in Europe] may be incremental market share gains by AMD," he said. "We know Intel had problems at the high end of the microprocessor space. And at the same time, AMD hasn't been doing bad at the high end."
Thus, Scovel rates AMD a strong buy, and Intel as a hold. "From their minority market share position and sub-$100 ASPs, AMD has an opportunity to move into the Intel space, with their $200 ASPs," he says, confident "there are room for gains there."
Last week AMD's shareholders were given another shot of confidence: citing strong demand for Internet and wireless equipment, the Semiconductor Industry Association (SIA) reported that worldwide semiconductor sales grew 53% to reach an all time high of $18.2 for the month of August. Perhaps evidence supporting Lam's theory, the report found that sales rose in all major geographical regions, including Europe, where they were up 46% year-over-year.
-From Whispernumber.com Earnings Spotlight |
