At its analyst day yesterday, Advanced Micro Devices executives told Wall Street they expect 2007 to be a big year for the company with increased market share, gross margins of 50% "plus or minus" two points and sales growth of 20% versus expected market growth of just 10%. The market responded to the news by pushing AMD shares up 12.59% to $22.71; the predictions were the catalyst in pushing the Philadelphia Stock Exchange's Semiconductor Index [SOXX] up by 2%. The reasons for AMD's forward confidence are manifold: a new deal to supply Dell notebooks with processing chips will help boost AMD's market share, a new line of chips to challenge Intel's Core Duo will be on the market in the second half of 2007 and the ATI merger completed this year will yield additional cost savings and growth opportunities. But with growing competition with market share leader Intel that has led to wide and deep price cuts, there are those who doubt AMD's claims. Sumit Dhanda, an analyst with Bank of America, dropped his price target on AMD, citing an erosion of average selling prices and adding that the gross margins figure of 50% is actually below estimates.
• Sources: Reuters, Business Week, CNET. Conference call transcripts: AMD Q3 2006
• Related commentary: AMD Jumps 12%; B of A: It'll Be Short-Lived, Goldman Adds AMD To Its Least-Favorite Tech Stocks, Even Without Competition From AMD, Intel Cuts Quad-Core Prices, So Again, Why is Intel Cutting Prices Without Serious Competition From AMD? Beats Us
• Potentially impacted stocks and ETFs: Advanced Micro Devices (NASDAQ:AMD), Allegheny Technologies Incorporated (NYSE:ATI), Dell (NASDAQ:DELL). Competitors: Intel (NASDAQ:INTC). ETFs: Semiconductor HOLDRs (NYSEARCA:SMH), iShares Goldman Sachs Semiconductor (IGW)
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