AMD: Chipping Away at Intel

Advanced Micro Devices (AMD) has increased its market share compared to its rival Intel (INTC), according to a July 1^st report from iSuppli. AMD’s market share has increased 2.2% over the last year compared to a decline in Intel’s share of .7%. iSuppli estimates that about half of AMD’s growth came at a cost to Intel’s market share, the rest of the growth came from smaller competitors. 

The two companies dominate the market for processors with a combined 92.7% of the market. Although Intel’s portion of the market is still far larger than AMD’s, AMD is making a push and represents a better value to investors. While Intel chips were used in about 7 times more devices in the first quarter, Intel is also a far larger company with a market capitalization of nearly 3700% bigger than AMD’s. AMD is already a decent and improving competitor to Intel and the stock is selling at 16 year lows.

While many industries have been hampered by strained consumer spending, up to this point, the PC industry has been buoyed by the consumer. The first quarter was better than expected—in spite of a nationwide business spending slowdown on IT—the consumer has picked up the slack and thus are driving the market now more than ever before. AMD seems to be attracting the consumer and small business users with its relatively cheap new product lines for desktops; its quad-core Phenom chips and its tri-core processors.

AMD’s stock suffered in 2007 (down nearly 70%) from disappointing product launches of the Phenom and Opteron chips, but sales are rebounding as the kinks have been worked out.  Furthermore, the price wars that had hampered gross margins on processors seem to have subsided as prices have not lowered from the fourth quarter to the first. 

We think it is reasonable to expect AMD to continue to eat into Intel’s domination of the processor market. AMD’s products are coming into their own and the “Puma” platform made for laptops is set to be released soon. From a value prospective, we find AMD to be enticing at this price level. The stock is trading below their historical range of price-to-cash range of 6.4 to 17.1; the current level is 6.1 times. AMD is even more attractive on a price-to-sales basis—the historically normal range for AMD is to trade at .92 to 2.62 times revenue—but right now the stock is trading at only .54 times revenue per share.

If AMD can continue to increase sales, even in a difficult spending environment, we see no reason why the stock should not sell at $7 per share. Then when the macro-factors improve, just for AMD to be selling at their historical averages of price-to-sales and price-to-cash, we would expect to see a price of $12.

Comments

[Smart1]

This is a joke, right...??? AMD is virtually bankrupt. If there was any share gain (which I really doubt), it came at the expense of losing huindreds of millions every quarter. How could anyone possibly write a headline like this one given that. Do a little anallysis of AMD's cash vs their burn rate and see what you think.....

[User 171211]

Who are you? Do you have a name, location or credentials you care to share with readers?

[PH]

Smart 1's comment is real example of economics idiot. If you are so sure of what u said, then, go shorting AMD with all you can. Then see what happen.... Any listed company, as long as its mainstream business is running, all has its residue value. Or else, many
listed companies worldwide would have collapsed already.AMD share price is so low becuse market overacted, panic. Just like the oil price is so high because speculators manipulated, markets overacted...

[Jenn]

My God, where to start...

1) How is it possible for "half of AMD's growth" of 2.2% be at the expense of Intel when Intel's loss was just 0.7 percent?

2) Why does the author fail to mention that on a quarter-to-quarter basis, AMD just LOST market share to Intel? In fact, from Q4 '07 to Q1 '08 AMD's share dropped from 14.1% to 13%, while Intel's climbed from 78.5% to 79.7%.

3) Why do people think that they can make something sound bigger by expressing it as a percent? Only an idiot or someone catering to idiots would say "3700% bigger" rather than "38 times." Anyway that's not even the correct number since, as of today, Intel's market cap is closer to 34 times that of AMD ( = 109B/3.2B). Sorry I mean "3300% bigger."

4) When exactly will "macro-economic&q... forces improve so dramatically as to push AMD's shares from $5 to $12? In 2008 with a projected earnings loss of $1.44/share? Or maybe in 2009 with a loss of just $0.63/share?

[Cleetus]

Jenn - If you can't do simple math don't add such sarcastic comments.
If AMD gains 2.2% starting from a much smaller number that will represent a small fraction of Intel's share (a much larger number). Innumeracy in America is frightening. This problem is compound by such people having strong opinions about other's idiocy.

[Smith]

Smart1 is saying that AMD gained a small amount of market share by selling parts below cost, as evidenced by the fact that they lost hundreds of millions of dollars. It isn't sustainable. I don't think he's making a statement about the stock price, valuation, markets, etc.

[Jenn]

Cleetus
The 2.2% gain is relative to the pie not to AMD's initial portion of it.
www.isuppli.com/news/d...

Think about this very hard and then get back to me.

Eagerly awaiting your reply,
Jenn

[-Will-]

With all respect I don't see AMD growing up when they don't really have new product to offer in the near future ... they have spent all its resources trying to merge ATI and not doing all the research they need to match Intel and even NVIDIA.

[tj115]

I definitely agree with this article. I see absolutely no reason why AMD is not trading at about $8.00 or $9.00 like it was very close to doing only a few weeks ago. I see this price as a huge value stock, with some amazing potential even in the short term as it will shoot back up very soon I believe. I will be buying the stock come Monday.

[Carrr]

The anonymous author sounds more like an AMD sympathizer than someone with any knowledge.
Anon. may be looking for reasons to feel hopeful about a losing situation. However, it is a disgrace that this article may influence others to throw money on a stock that is on a downward spiral.

[wall_st_geek]

Ockham Research is far from anonymous. They have a website, contact info available on that website and fully describe what they do and what their philosophy is. Just bother to click on one of the links on the left, and you will get all you need.

As to the article, I don't see that they are saying "all is right" - but more that "it is getting better", and that they see price appreciation opportunities. Instead of bashing them, feel free to write your own artciles refuting their analysis....

[Smart1]

Can anybody tell me what AMD is going to do about running our of money....???? This not some monopoly game, you need real money to operate a business.

By the way PH, I consider it an honor for somebody as poorly informed as you to call me an idiot.....

[Larry M.]

Hey Investors ...... and Consumers ........ ya better hope that AMD makes it. If they go down ....... Intel will really ratchet up Prices. If the Public was ... which they are Not ...... they would Purchace AMD just to Keep a Good Product Alive and to Keep Consumer Prices Down !

[Bugs]

I recall Jim Cramer screaming AMD was " Best of Breed " and Intel was run by lawyers and to stay away. Cramer's next target for AMD ( from around $33 per share ) was $ 40.00. He repeated this garbage until it ceased to be a screaming buy under $ 30 and traveled to the low 20's. Now he says there is no purpose for AMD's existence. With AMD almost in penny stock range ( $5.00 & below ) and Intel shares struggling It's best to put money in Intel not AMD as tempting as the author's target price of $12. Intel has been " Best of Breed " for a long time, but this doesn't mean it will make you money. $18 to $27 ( roughly ) has been Intel's best run in the last couple of years. AMD shares have been everywhere and back. If you want to speculate AMD may be a vehicle. It's just not to my taste because I agree now with Cramer that AMD has no reason to exist.

[Jenn]

"We think it is reasonable to expect AMD to continue to eat into Intel’s domination of the processor market."

When a sentence begins with that many weasel words you know you're dealing with a severe case of wishful thinking. With AMD losing ground to Intel on so many fronts, it's not only unreasonable to expect them to "eat into Intel's domination", it's borderline delusional.

The unasked question is how will AMD survive when they continue to fall behind on process shrinks and are about to lose their two advantages in architecture (HyperTransport, IMC) ?

I just read that Ockham Research's motto is "efficiency is valuable." That's ironic since they seem to have zero appreciation for the value of efficiency in technology. AMD is being killed by Intel on that very basis and no amount of gimmickry named "Puma" "Fusion" or "Asset Lite" is going to save it.

______________________...
Hey Cleetus (a.k.a. Pompous Ass Coward) where r u hiding? We want to know more about the plague of innumeracy!

[htroute66]

I sure am glad you ANAL-ysts are always right! Dreamworks has chosen to use INTC chips in lieu of AMD chips......exactly how much market share did AMD pick up on that one? AMD probably won't even last until the 2010 court date! Ruiz is doing the same thing to AMD that he did to Motorola!

[Max fromMass]

AMD is only able to continue in business because of the capital infusion from the Sovereign Wealth Funds of Arab states.

Only the hopelessly naive would believe that their investment was not a reaction to Intel's strong presence in Israel, a second large fab opened last month. Its hard to gauge what the limits of further investment are since they are not based on hopes of a financial return.

And only the hopelessly optimistic would believe that AMD is capable of developing a family of processors which allow it to compete with Intel while generating a profit for itself and another company which will actually manufacture the chips.

AMDs reaction to having an obsolete manufacturing process was to outsource manufacturing. (The alternative - modernizing - was beyond their financial reach). Now it is faced with the burden of trying to generate profits for two or more companies.

One cannot predict AMDs market performance since Wall Street Analysts are ignorant of the industries they cover, but the fundamentals of AMD will only become more negative.

[livefoadrenaline]

"The unasked question is how will AMD survive when they continue to fall behind on process shrinks and are about to lose their two advantages in architecture (HyperTransport, IMC) ?"

Do you mean that business survival is predicated 100% on technology and is not impacted by business decision-making at the corporate level?

"Can anybody tell me what AMD is going to do about running our of money....???? This not some monopoly game, you need real money to operate a business."

Currently they have between 2 years and 6 years of cash available to fund negative operations, but they are slowly coming out of the negative, imho. After a year of delay they have their quad-core server chips out, which may impact their margins and profitability favorably.

"Hey Investors ...... and Consumers ........ ya better hope that AMD makes it. If they go down ....... Intel will really ratchet up Prices. If the Public was ... which they are Not ...... they would Purchace AMD just to Keep a Good Product Alive and to Keep Consumer Prices Down !"

^^^^IAWTC

[Max fromMass]

Technology matters. When no vendor has a technical advantage a market becomes a "commodity market". In a commodity market the lowest cost vendor wins.

AMD cannot win in a "commodity market". Their recent gains at the low end have been profitless gains.

Higher profit margins come from premium markets and the technology balance has swung to Intel. AMD's business strategy requires they establish technical superiority, an unlikely result to be sustained for a significant period, if at all achievable.

Should AMD go down, it is likely that a large Taiwanese or Chinese Fab would enter the consumer market for CPUs. Without the development burden AMD has and with high capacity, large wafer production a business plan for success in this commodity segment is possible. Until AMD exits the market its potential to disrupt such an effort is enormous, and works to the disadvantage of the consumer.

[Smart1]

AMD reported about $1.4Bn in cash and cash equivalents at end of Q1. Their burn rate for the last year has been about $300Mn/qtr. That would mean just over 4 quarters except for the fact that you probably can't operate a company that size with less than at least 2 or 3 quarters of cash. They have to do something about that very soon.

In the microprocessor business, process technology is a huge factor. For example, it allowed Intel to continue to dominate even during the period when AMD had some architectural advantages. That process technology advantage virtually guarantees that AMD will struggle competing only in the low end and unlikely to reverse their financial dilemma.

No Taiwanese fab is going to take over the low end of the Intel compatible CPU market. I doubt there is any fab in China even capable of doing it. The only reason AMD can produce those CPU's is because they have a license that they got long ago. I am virtually certain that no one else (certainly not an Asian fab company) has the license or right to produce those parts.

[Max fromMass]

AMDs transition to a fab-less operation has made the possibility of a far-eastern low-end producer possible. Buy the rotting hulk of AMD and you have bought ALL of the required licenses.

[Smart1]

I believe the license is structured to prevent exactly that....

[principle]

I cant believe how ridiculous so many people sound. Why do you egg on the failure of a company that revolutionized the PC industry? If not for AMD youd still be using a P4, how would you like that?

You all must be Intel shareholders, I am, but I also use AMD more so than Intel products. I have no doubt that our laws are written such that Intel essentially prevented AMD from even becoming big enough to compete properly. Not that I think what they did was ethically wrong in a capitalist market, but it happens to be legally wrong.

AMD was first out the door with every technology push int he last 10 years, so check your facts everyone, Intel was a joke until AMD came along and Intel struggled to keep up, but because of people like you Intel maintained dominance when they didnt deserve it.

And you all are ignoring the graphics side of the business, which will be profitable in its core business. AMD is doing everything the right way, but Intel is fortunate enough to have enough money to throw at manufacturing technology.

AMD's new products are pretty impressive, nothing to bawk at, and Im not just talking about CPUs. AMD is advancing all aspects of computing. Their new chipsets are incredible, and I cant wait to get a 790GX after building a low power "green" 780G desktop for my parents, with a 45 watt 2.5Ghz AthlonX2. Its amazing what you can get with AMD for such a low cost.

[Smart1]

Do you realize that AMD has lost money over the entire period of it's existence. In other words, if you add up their profitability for the entire 40 years or so since they were founded, they have lost money (not sure how much but hundreds of millions, likely billions).

They have been copying Intel for that entire period with the exception of a couple of architectural features a couple of years ago. For decades they were known as the "Milli Vanilli" of semiconductors. You will have to look that up if you don't understand.

To state that AMD is, or ever has been, any kind of real, consistent leader in the microprocessor arena disqualifies you from even being considered ignorant. You would be somewhere significantly less than that.....

[principle]

Smart1, youre so dense its not funny, go back to using a PIII if you think AMD is insignificant. And you are talking about money, and I'm talking about actual enginuity. AMD was first to increase the FSB and onboard cache for desktop cpus to give you better performance hence Athlon, first to use DDR RAM and give us this multiple data burst per clock cycle that Intel copied to the now quad pumped, first with 64-bit cpus, first with dual core cpus, first with native quad cores, and first to move away from a front side bus architecture. So tell me what Intel has done first in the last 10 years of the real computer advancement boom, or have you been using the overpriced PII that you bought when Intel said reaching 1Ghz was impossible.
Amd has also been long time running in the low power "netbook" market that many people dont even seem to realize. Intel now comes out with the Atom and oh my gosh, it so revolutionary, not.

[Smart1]

Do you have any idea of the history of Intel/AMD in microprocessors....?

I assume you realize that AMD announced that they will be taking another $1Bn (that is billion with a b) loss in the second quarter. That doesn't even include their operating loss which will likely run into the hundreds of millions additional. Meanwhile, Intel will announce on Tuesday that it made a profit of something north of $2Bn.

I started buying PC's with the 8088, the genesis of PC cpu's. AMD has been merely a footnote in the PC industry (except for the staggering amount of losses they have incurred). Their most significant achievement is managing to stay in business while losing all that money. I would keep everything about AMD that you have. They will soon be history and maybe it will be worth something.....

[principle]

So you cannot list one achievement from Intel in the last 10 years that was an original thought of theirs and they were using it first.

And again you resort to talking about money, and how the monopolous Intel is so much better at making it. and you dont understand anything about it do you, because you think they lost $1B? That is not what that means at all, it just mean they thought they paid too much, get it right before you speak. They will "take a charge" probably to get some tax break.

[principle]

Oh and its nice that you used an 8088, good for you, went back 30 years to find something Intel did first, and AMD was able copy so readily, and in fact have better performance than Intel, driving them to do better. So every step of the way without AMD Intel would have been stagnant.

And my first computer was yes and Intel 486 from IBM with DOS, and then ugpraded to Intel P1, and PII Xeon then to AMD Athlon, and a PIII, saw many friends with P4, and I got Athlon MP, have m laptop with P4M and just now Athlon X2 desktop, so I've had my fair share of both.

[Smart1]

You do realize that AMD pays Intel a royalty on every CPU they sell, don't you.....????? Wonder why that is.....?????

[Smart1]

Oh, and by the way, I don't expect they will be needing any tax breaks any time soon. I don't believe they will be paying any taxes....As a matter of fact, if they don't figure out how to get some money, they will probably go bankrupt in 2009.

[principle]

OMG, are you kidding me, quit talking about crap that happened more than 10 years ago, anyone that uses x86 has to pay Intel. Again you keep talking more than 10 years ago, so apparantly Intel hasnt done anything original in the last 10 years.

And now that Intel wants to upgrade to AMD's architecture, they may be paying AMD for that patent license.

You still dont get it, they didnt lose $800M, it was intangible reputation they are writing off. Its less severe than if they actually bought $800M in machines and it degraded in value every year. They will most likely come out profiting next quarter. They had a very low loss last quarter, except for acquisition expenses. And soon they'll be done paying for ATI.

Now that they own ATI, every system with Intel that uses ATI graphics card AMD gets paid, and now AMD makes the whole chipset and graphics, so they dont have to pay Nvidia or others for those items, so margins will go up.

[Smart1]

You are right, the 800M or so is not a current cash loss. However, it is real money that they paid to acquire ATI. They paid $5.4 Bn for ATI and are now admitting (by this and prior writeoffs) that they either paid too much or ATI has deteriorated that much. In any case, it is real money that they paid to ATI shareholders at the expense of their own shareholders. It is like buying something for $10 only to find out it is now only worth $5. It doesn't cost you any more cash but you still lost $5.

Also, I am betting they will have an operating loss of over $100M to go along with their reserve losses (for pending layoffs etc) and the ATI writedowns.

There is no chance Intel will pay AMD any royalties in your lifetime. Besides that, there probably won't be anybody to pay by the end of next year.

[principle]

Oh and the state of New York would waste $100M on roads and utilities if there was a chance AMD was going to go bankrupt? You think they are stupid too? I can see where AMD might back out because of not having the captital but there is no way the State would spend money if the financials showed a possible bankruptcy.

Have you looked at Intel's roadmap? It is specifically moving to the AMD architecture of integrated memory controller, and since that could be seen as an AMD patent, then Intel would be obligated to pay royalties, even though there is no need to licence it, as their deal already provides access or licesnces to eachothers patents.

[Smart1]

The state of New York (like all state and local governments and, most of all, the federal government) wastes giant amounts of money every day. They will not even notice it (or admit it). You have a better chance of being elected President of the US in November than New York does of getting a AMD fab built there......

[principle]

You are an eternal pecimist or possibly just a stock market manipulist, if thats a word.

Youre talking about big business and local officials' and senators' reputation, and those people are not likely to stake their re-election on a long shot deal destined to fail.

The country is in a bit of a tailspin, and anything a state can do to raise employment and tax income is big news.

AMD will be fine, next quarter they will be at an operating profit, and in which case will most likely be willing to commit to the New York Fab deal. Getting a fab in the US is a big deal, instead of offshore in europe, middle east or Asia. A sign that the Government wants more competition and technology back in our borders, which will benefit a small company like AMD.

[ngumbi]

Smart1, you haven't addressed principle's argument at all and just keep changing the subject. What a joke. AMD has a long history of being the smaller innovator and not so long ago their stuff was the best. Saying they are going down the tubes is quite a leap. They can do it again and I think they have a bright future with ATI.

[Smart1]

You guys are nuts.....Just look at the balance sheet....Intel may be shipping 32nm parts before AMD even ships 45nm. They are far behind and have no money.....They are doomed.....!!!!

[principle]

And so now you resort to manufacturing technologies and Intel's ability to throw money at a problem. This is the only way Intel can compete is it? By throwing money into production techniques, not through design innovation. Your insistance to look at only the money numbers clues me into the fact that you must be an Intel shareholder/fanboy, AMD basher, and do your best to manipulate the market. You probably short AMD, giving you a very biased opinion.

feature size shrinks are not always a trivial thing, and Intel may have "bugs" or "glitches" arise at any time trying to move below 45nm. I've done it a few times. And if they hit a wall with it, they could easily see several billions of dollars down the toilet. In that way the followers get an R&D discount.

[Max fromMass]

Some of us suffer from really long memories.

In its early years AMD was a manufacturing powerhouse, but a development disaster.

At that time, chips were not used by electronics or computer manufacturerers unless they were manufactured by multiple companies. Many of the chips in AMDs catalog were the designs of others for which they received a cheap license to be the "second-source&qu... The companies which designed and manufactured to chips entered into these agreements becuase this was the only way they could sell their products. Both companies benefited. But customers prefered the "prime source".

In the 8088 days of PCs AMD began its efforts to design equivalent chips to Intel without actually licensing the Intel designs.

Its "equivalent" to the Intel DMA chip is a particularly vivid memory of mine. I personally replaced the AMD DMA chips in 250 PCs in the field because of its inferior design. It was the cause of many a mysterious system hang. Many PC manufacturers who were using the AMD chip due to Intel shortages, put them in sockets on their boards, rather than soldering them because of the high rate of replacement.

Over time, AMD developed a reputation as an innovative chip developer. In my opinion, this was based solely on speed claims. It also allowed its manufacturing capabilities to fall behind.

Now they are on a path to be a fab-less chip company. And a fab-less chip company must have a manufacturer's profit in its cost as well as its own.

This is not a fatal flaw if the price to its customers can be raised, but in a competitive market, where the major competitor has a huge advantage in product cost due to their high yields and large wafer size, AMD cannot.

[principle]

I dont think AMD will ever be fabless, maybe fab-light as they move to newer technologies.

[Max fromMass]

principle - you might want to believe fab-light, but without a major capital infusion they just don't have the $$$ to build a modern fab for any of their line, and their current facilities are hampering their profit margins and cannot be relied upon in a competitive market.

The stock traders consistantly undervalue manufacturing prowess prefering to focus on new product development, and market hype, until the lack of manufacturing investment totally destroys the fundamentals.

Intel can, if it wants to, underprice AMD on EVERY product and still make a profit. As things stand it need not. AMD's is not a situation I would want to be in.

[principle]

AMD is not in a good place, but with a single good product launch it can bring such a small company back in a big way. Intel is releasing its new Nehalem for servers soon, but if AMD could simply get one thing out the door early that would help them it would be the Shanghai, HT3.0 45nm Opterons this year, which should be very impressive in a "green" package. Then Fusion is in the timeframe Nehalem goes mobile.

I see the potential for these products to compete extremely well, and maybe Arab oil will come back for another round of paying the bills for Christmas. And then Intel will probably get fined $4B by the European Commission.

And I'm not quite sure how dreamworks expects to do better with Intel graphics as those like 50 articles were published about, talk about biased INTC media. They will probably end up with Intel computers with AMD graphics, well anything but Intel graphics.

[Smart1]

I assume you saw the quarterly results from both companies that were released on Tuesday for Intel and Thursday for AMD.....!!!!!

[principle]

Sure, they were as expected, whats your point, no one ever said they were going to make money this quarter, and you were the only one arguiing about money.

[Smart1]

How would you like buy this great bridge in Brooklyn....?

[principle]

Yeah, so this pretty much confirms you short AMD stock, go around to all the forums and tell people about how terrible their stuff is.

The exchange of the CEO pretty much confirms it for me that it is a known turning point for them. They have taken the last of their "charges" related to the ATI acquisition, are selling off parts of the company that aren't core business and not making money, and they will get back to good business. They know what they are setting themselves up for, and I wouldnt doubt if you see insiders buying it up over the next quarter.

They claim, they will only need revenue of $1.5B to break even in this next quarter, so that is completely achievable, and then add in selling the other pieces of the business and you might even see a good profit next quarter. Now you'll just have to wait and see if they were lying about the $1.5B number :)

[Smart1]

That bridge is a better deal than AMD....

[principle]

We'll see how the community accepts a 130W server processor from Intel later this year. I'm not expectnig it to be recieved well when AMD's Opteron does just as well with floating point and virtualization, and Intel just hold onto their integer performance lead. Meanwhile AMD's new server cpu this year will be sub 100 watts and much lower for lower clock speeds for most of the same performance.