Novice Investing - AMD Advances Ahead of Intel

Date: Monday 13th 2008f October 2008 11:01:38 AM

AMD Advances Ahead of Intel - 04/13/2006

By: Novice Investing Staff

Advance Micro Devices Inc. (AMD) solidly report earnings of $ 185 Million for its latest quarter. That translates into earning of 38 cents a share versus analysts' estimate of 30 cents per share. Contrast that with Intel's announcement back in March 2006. Intel reduces its revenue estimate on March 3rd 2006, blaming AMD and slackening demand.

Lo and behold. Demand looks fine if you are wearing AMD's shoes. It beats earning estimate by 8 cents and gross margin is up in the 58.5 % range. That is Intel type gross-margin and it shows that AMD does have pricing power, at least for the quarter. All this and management manages to keep inventory lean at $ 337 Million, down from $ 388 Million last year. Intel, meanwhile, has been struggling with inventory management since 2004. At this point, AMD does not seem to juice sales by driving up inventories.

What is next? Semiconductor is a notoriously cyclical industry. Each company tries to build bigger and more efficient manufacturing plant while innovating its product line day by day. Last month, Intel has announced to build a new microchip plants capable of producing smaller chips. That would be a threat for AMD. Spinning out new chips at a cheaper price means that Intel can wage a price war without incurring losses. In the past, AMD has given back its market share when Intel does that. In recent trade, AMD shares is down 6.5% due to this concern.

Can Intel succeed in winning back its market share? History seems to back Intel. Is it different this time? We are not so sure. AMD's dual core processor has been a success and it has built quite an audience this time around. While Intel will sell its own dual-core processor, I doubt that price cut will be as effective as it was in the past. Case in point? Intel recently spent $ 2.5 Billion merely to rebuild its brand. While the company feels that it needs to realign its brand for the future, we just feel that this brand remodelling is a sign of struggle in Intel's part. It shows that consumers' appetite towards Intel's branding campaign is waning.

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding AMD Inc. (AMD) or any other securities.

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