AMD Seriously Wounded

AMD: Disappointing Demand and Low Stock Price

Posted on Mar 1st, 2007 with stocks: AMD

http://chip.seekingalpha.com/article/28448

Eric Savitz (Barron's) submits: The microprocessor wars rage on. Gurinder Kalra, an analyst at Bear Stearns, today trimmed his earnings estimates on Advanced Micro Devices (AMD) and warned that the stock could drop to trough valuation levels of $11-$12 a share.

Kalra says AMD is likely to gain market share in the second half of 2007 and in 2008, but due to aggressive pricing, rather than any technological edge. Meanwhile, Kalra says that first quarter unit shipments are tracking -

well below our conservative expectations… due to weaker than expected demand for AMD in mature markets, the company’s inability to penetrate existing accounts given its less competitive product roadmap, and our belief that some of its desktop customers have increased their activities with Intel (INTC).

Kalra expects AMD unit share to drop 140 basis points to 23.7% in the first quarter from the fourth quarter. He predicts that second quarter processor pricing “will deteriorate significantly beyond current market expectations,” and also thinks the company’s market share will fall in the second quarter “given the lack of new product introductions.”

Kalra also expects AMD’s fabs to be under-utilized in the the year’s first two quarters, “further impacting gross margins.”

Kalra cut his first quarter revenue estimate to $1.53 billion from $1.65 billion; he increased the expected loss for the quarter to 22 cents a share, from 11 cents. For 2007, he now sees a loss of 58 cents a share, widening from 15 cents; for 2008 he now sees a profit of 35 cents a share, down from 50 cents.

This morning, AMD is down 25 cents at $14.82. Rival Intel is down 43 cents at $19.43.

AMD vs. INTC 1-yr chart

 

I've been watching this one since I built a system using one of their processors back in June of last year. I've always used Intel procs, but I have no loyalty one way or the other.

The 1 point gain it saw this week was interesting, but I would have been surprised to see it last.

I think the acquisition of ATI was a stroke of genius, although I expected a similar move toward Nvidia, since most of their previous love triangles have involved the latter. Intel has always been more closely associated with ATI.

Most forecasts I have read indicate little progress in the price war until later this year, not because of any advantage they may or may not have over Intel, but in the lack of interest Intel will succumb to in pursuing this price war. Intel is just bleeding AMD for the fun of it. When the board gets tired of the game and demands more profit, the war will be over and AMD will do just fine because they can build procs cheaper than Intel.

As a trade I think it's a loser, but as an investment I think it's good. 6 to 9 months from now I think it's a $20 stock. Just my 2 cents. Vista is a flop folks.