Because my intent isn't to stir an INTC v. AMD debate, I'll keep it short (correction: I rarely make anything short....except a sale).
INTC
-its attempts at diversification have not been successful and tend to be money losers.
-its core market, CPU's, is facing uncertain growth. Intel's execution in this sector in the past year has been abysmal and is representative of a company with serious internal problems. The evidence includes numerous chipset recalls, P3 1.13 recall & delay, Tinma cancellation, continued reliance on RDRAM for the P4 at the introduction, P4 delays, first production of P4 which many motherboard makers say they will not support, P4 which appears to be a relatively poor performer which demands 2 RDRAM chips which itself will keep it a niche chip until mid 2001 when alternative chipsets are introduced, P4 which will not be INTC's revenue leader until some time in 2002 which leaves INTC with a 1ghz P3 until early-mid 2001 when they claim to release the 1.13ghz. By this time, AMD will likely be in the 1.4ghz range or higher. Furthermore, many believe Itanium, which has continuously been delayed, will be underwhelming & performance problems have dogged this chip with most samples at 500mhz v. the 800mhz INTC expected
-INTC faces competition it areas it never has. Competition will also enter other protected areas which will result in continued ASP pressure on INTC's high margin chips. Witness what the Athlon will be doing to INTC ASPs in the mid-high end desktop market (<$300 for a 1ghz Athlon). AMD will be entering the server, dual processor, & high end mobile chip market in 2001 further taking aim at the high margins that INTC has had. INTC has been able to protect itself in the past b/c it was the market leader in the high end. This protection will dissolve if AMD continues to execute and has dissolved in the high end desktop market. INTC ability to be the leader in the high end market has been INTC's key to battling competition. This protection no longer exists & INTC is fumbling all over itself (as witnessed in the last year). If a price war breaks out, the winner (or the party who loses the least) has been the party who controls the high end. In the desktop market, a price war will hurt INTC significantly more than AMD.
-I continue to hear of dissatisfied employees at INTC....this is never a good thing during desperate times.
-PC saturation. I do believe there is PC saturation to a certain extent in the US. Other countries markets have become extremely imortant to fill this void. If other countries follow Europe's consumer selection, you will find that INTC will continue to lose current market share to AMD as other countries consumers' dedication to "Intel Inside" is not what the US's loyalty is. Price/performance is far more important than a marketting gimmick & AMD is clearly the leader.
-Given relatively limited growth in the PC sector, it becomes a game of who can grow more. While AMD has plenty of room to grow their market share, INTC does not. The market is INTC's to lose & AMD's to gain. AMD's aggressive pricing structure resulted in AMD producing a substantial greater number of chips then was expected this past Q. AMD will continue to price its high end chips in this manner to gain market share from INTC. INTC's "Intel Inside" gimmick will not save it from having to compete with AMD on the pricing front, if INTC can even compete with AMD (who is about to introduce a 1.2ghz chip while INTC is stuck at 1ghz).
-In sum, INTC faces pricing pressures that it never had to deal with in the past. These pressures will only continue as AMD takes aim at the last remaining areas INTC controls.
I believe that INTC will continue to have serious problems in the near future. AMD's continued execution will only aggrevate INTC's internal problems & insure that INTC's ASP's decline. I would not hold INTC here. If you sell now you may sell a little lower than if you wait for earnings & the cc, but you will not be selling at the bottom. In the past, when INTC warned, they usually met or beat those lower expectations & had some form of positive guidance. I believe this Q will be different.
Is AMD a good buy?
I believe it is. If you follow the street, good news for INTC is bad news for AMD, bad news for AMD is good news for INTC, and bad news for INTC is bad news for INTC. As a reader of the A@P formula, you'll find a consistency with most analysts (up until a few weeks ago when INTC itself spoiled the party): they are out to protect their capital and/or leave others holding the bag. Despite the bullishness on INTC, over $200 billion vanished in a flash. That is more than 20X the market cap of AMD. The analysts & institutions find little to gain by being pro-AMD simply b/c AMD has far fewer shares. None the less, AMD has a p/e of approximately 8. AMD is probably the largest high end flash memory producers in the world (INTC has claimed #1 but they & don't release their numbers). It's flash unit alone, if traded separately, would demand a higher value than AMD currently does if you would compare it to other flash producers. AMD has market share to gain...they 10-20% market share depending on the market. AMD is expanding into competitive arenas that allow for higher margin chips including high end notebooks chips & servers. AMD is also already starting from low ASPs so pricing itself competitively will not punish AMD as it will INTC. There are some dangers with AMD. First, there continues to infrastructure issues in its low end market (integrated video chipset will not be released on time for the Duron processor which actually is more akin to a P3 then a Celeron, which it blows away). Secondly, PC saturation is a possibility making it increasingly difficult for AMD to meet expectations on the number of chips it sells (although it blew away predicted numbers this Q). To meet this goal, AMD is having to price competitively. While it will definitely hurt INTC, it has also kept AMD from growing its ASPs. Entering the higher margin sectors (high end laptop & servers) will help as will the fact that AMD will control the high end desktop arena for the near term. Flash growth has been tremndous & b/c they produce high bit flash chips, growth should continue for them.
There's more to be said for both of these arguments (what I typed was just what immediately came to mind). But, above is a quick summary....the fundamental battleground of INTC v. AMD. Holding a stock is all about probability. I think the probability that INTC continues to get nailed by AMD is high. This discourages holding INTC. Meanwhile, I believe the probability is fairly good that AMD can continue to execute & grow market share. The primary question is if AMD will cannibalize its own market in doing so.
Is AMD better to trade?
Depends. It can be traded. It used to be alot more volatile than current but it's still tradeable. I've traded it a couple times in the past weak. I'd hold AMD (& do) before I would hold INTC. I think at the moment, both are going to be relatively dead money (actually INTC is lost money, imho). AMD still has alot to prove & the institutions aren't about to give anything to a company who is most responsible for INTC shaving off more than $200 billion in market cap. From being called a "clown company" to "road kill," (per Ashok Kumar) AMD can't be a favorite amongst analysts b/c a positive for AMD is a negative for INTC. Of course, AMD was a favorite while they we're dumping but its important to remember that INTC stock price was also doing well at that point. November 9th is AMD analysts meeting. Unless AMD announces something spectatular & unexpected (not the 1.2ghz chip it will be announcing), AMD probably will be relatively flat until Nov. 9. There are better tradig stocks out there. If you like AMD's fundamentals (one of the cheapest semis on the market), I wouldn't trade it....grab yourself a small comfortable position that you wouldn't mind seeing go down to $10 or $15 & kick back.
Hope this helps,
Chris
P.S. I have not re-read what I wrote. If their are minor inconsistencies or things that are confusing or don't make sense, I apologize in advance. |
