Intel, AMD: Still Room to Fall Further?

This week, Intel (NTC)  and Advanced Micro (AMD) reported third quarter results that beat many estimates. However, the rival companies were united in their view that the financial crisis will affect demand in the fourth quarter.

At Intel, revenue was up 1% y-o-y and 8% q-o-q to $10.2 billion driven by strong microprocessor sales. Net income was up 12% to $2 billion and EPS was $0.35. Analysts expected earnings of 34 cents on revenue of $10.25 billion. Intel bought back shares worth $2.1 billion in the quarter versus a share repurchase of $2.5 billion last quarter.

Gross margin in the quarter was 59%, up from 55.4% last quarter and beating guidance of 58%. The increase is driven mainly by lower microprocessor costs and higher microprocessor revenue. 

By segment, Digital Enterprise Group revenue was $4.07 billion, down 1%, while the Mobility Group revenue grew 20% to $3.39 billion. Atom accounted for revenue of $200 million.

By region, Asia Pacific revenue grew 12.5% to $5.4 billion or 53% revenue. Revenue from Americas declined 5% to $1.9 billion, Europe grew 8% to $1.9 billion, and Japan grew about 13% to $1.06 billion.

Intel is on my list of Top 10 Semiconductor Stocks. Over 2006 and 2007, it reduced headcount by 20,000 and reduced expenditure by about $3 billion. However, given the uncertainty in the economic conditions, it has given a wide range for its fourth quarter outlook and will hold a midterm update in December. Revenue is expected between $10.1 and $10.9 billion. Gross margin is expected to be 59%, plus or minus couple of points.

For the full year, Intel has revised its expenditure expectations. R&D should be down to $5.9 billion from $6 billion and capital spending will be $5 billion, down from $5.2 billion. It also announced its plans to acquire networking company NetEffect for $8 million in a bid to start off its line of network interface cards for servers and cluster systems.

The macro conditions in the semiconductor business are such that the sector is not the greatest place to make money these days, except in the smart phone and convergence device segment [Qualcomm (QCOM), Broadcom (BRCM)]. Intel, of course, is attempting to crack that segment with Atom.

And yesterday, Intel’s main rival, Advanced Micro Devices, Inc. (AMD) reported a less-than-expected loss. It was the company’s eighth straight quarter of losses, but losses did narrow to $67 million or $0.11 per share, from $396 million last year. Gross margin improved to 51% from 41%. Revenue was $1.776 billion, up 32% q-o-q and 12% y-o-y, driven by an upgrade to the company’s ATI graphics processor line. Results also include $191 million from process technology license revenue. Analysts had expected loss of $0.40 per share on revenue of $1.78 billion.

By segment, Computing Solutions revenue grew 8%  y-o-y and 26% q-o-q to $1.4 billion driven by 50% q-o-q increase in quad-core shipments. Graphics revenue grew 40%y-o-y and 55% q-o-q to $385 million.

To curb its losses, AMD recently spun off its manufacturing operations to a joint venture with Abu Dhabi-based Advanced Technology Investment Company. This strategy will help in AMD’s turnaround and allow it to concentrate efforts on designing chips. After a failed rollout of the much-discussed Barcleona processor under the former CEO Hector Ruiz, AMD, with new CEO Dirk Meyer at its helm, is now shipping a new 45 nm processor, Shanghai. As we discussed in an earlier post, the main bone of contention between Intel and AMD is the multi-core chip market. For now, it has lost some ground with Intel already launching its eight-core processor, Nehalem.

AMD expects demand to be weak in the fourth quarter. Revenue is expected to be about $1.6 billion, flat with third quarter figures excluding license revenue.

The stock is currently trading around $4 with a market cap of about $2.5 billion. It hit a 52-week low of $3 on September 29. Intel, with a market cap of about $89 billion, is trading around $16 after hitting a 52-week low of $14.26 on October 10.

The market however, doesn’t seem to have hit bottom yet, so even though these stocks look impossibly cheap, they may go down further.

Comments

[dieselfiend:]

AMD never hit $3.00 (maybe on 100 shares, if that), look at your chart and do your research first. If AMD and INTC can prosper in such a crappy psychological fear driven economy (which appears to have happened within weeks rather than slowly over time) then I can see that they will do extremely well when all of this fear is driven out of the market and economy. The world is not coming to an end folks and people still need to eat and buy a home to live in. It may be slow for a while but as history will show repeatedly, we will come out of this mess as always. Warren Buffet says it's time to buy when there is fear and get greedy when there is exuberance and that is how he made his billions over the last few decades. I trust him 100% and he has excellent credibility considering he is the RICHEST MAN IN THE WORLD!!!

2008 Oct 17 01:51 PM

[spqrusa:]

DIESELFIEND AKA DUMBA$$

The article is about further decline not long-term potential. If you think we're gonna turn out of this FEAR BEAR overnight then you are HIGH.

2008 Oct 17 02:04 PM

[amdman:]

You got the revenue estimate wrong, and failed to point out the high short interest in AMD, and that you cannot go short below $5. These shorts will need to buy when AMD rises again, volitile swing up AMD will have one day soon.
"Revenue from continuing operations rose to $1.78 billion. After excluding license sales, revenue was $1.585 billion, ahead of the average analysts' estimate of $1.48 billion, according to Reuters Estimates."

2008 Oct 18 12:50 AM

[amdman:]

I did think this was one of the best financial reports on INTC and AMD I have ever read, most try to hide the truth that Intel is spending all its income supporting its stock price, and other white lies and misinformation.
Sorry to nit pick.
Also AMDs market cap is less than 3% of Intels, while having ~15% revenue share and ~24% unit share.

2008 Oct 18 01:03 AM

[principle:]

How has AMD lost gorund because the "launch" of an Intel 8-core? Where is it, its not here yet, and I bet two Shanghai 4 cores will perform better than a single Nehalem 8 core and probably at the same power. Contrary to popular belief, AMD's technology is not far behind, in fact Intel is now cloning AMD's cpus. AMD is already producing 45nm cpus to ship this year still, but Nehalem will likely not be around in systems until 2009 since it requires new platforms, whereas AMD's are all backwards compatable to current motherboards and current servers.

2008 Oct 21 12:27 PM