AMD Pre-Announces Q2 Revenue Miss; Eyes on Intel, Dell and HP (AMD, DELL, HPQ, INTC)

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AMD Cautions Of Revenue Drop As Intel Cuts Prices

• Summary: AMD warned last night after the market closed that Q2 revenue would be 9% lower sequentially, worse than its prior guidance of "flat to slightly down", in spite of "record" sales of its Opteron server chips. AMD has been eating into Intel's share of the microprocessor market, historically 80% of unit sales and 90% or revenue, but Intel is now counterattacking by cutting prices and releasing three new microprocessors by August.
• Comment on related stocks/ETFs: AMD's stock (AMD) was down less than 1% in after-hours trading because weak PC sales and price competition with Intel were already priced-in to the stock. William Trent discussed Intel's aggressive price cuts on June 9th and data points from Lenovo and Walsin on July 3rd, and the Semiconductor Industry Association reported a 2% year over year decline in microprocessor sales by value on July 5th. The key question for semiconductor investors now is what's priced-in to Intel's stock (INTC). Intel's profitability is highly leveraged to revenue, but it's hard to guage the extent of the damage from the price war with AMD. The WSJ article says "Intel is expected to report one of its worst quarterly results in years for the period ended June 30", but the issue is: How bad is bad? The AMD news also won't help the PC stocks, particularly HP (HPQ) and Dell (DELL). The key issue for them is how much of AMD's pre-announcement was due to weaker than expected unit volume, implying that PC sales were weak, and how much was due to price competition with Intel, which has no implication for PC sales volumes and might actually boost the profitability of the PC vendors. Dell's cost advantage over HP becomes stronger when component prices are falling due to its lean-inventory model, and microprocessors are the single most expensive component in most PCs.

H-P to Further Streamline Operations, Real Estate

• Summary: After already announcing that it would consolidate its 85 data centers into 6 locations, HP said that it would consolidate several hundred more locations world-wide into "core sites".
• Comment on related stocks/ETFs: Evidence that HP CEO Mark Hurd isn't done cutting costs is incrementally positive for HP (HPQ), but the news will be drowed out by the implications of the AMD pre-announcement.