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I’ve made some adjustments to my portfolio during the last two months of this year. Most notably, I’ve sold my positions in Yamana Gold Inc. (AUY), United Microelectronics Corporation (UMC) and Nortel Networks Corporation (NT), and I’ve added a large position in Intel Corporation (INTC).

I continue to believe Intel shares are undervalued at today’s prices. The Intel Core 2 Duo microprocessor, currently powering the vast majority of new PC products, is a superior product in performance to Advanced Micro Devices Incorporated’s (AMD) current offerings.

As evidence from computer hardware enthusiast websites like HardOCP points out, there is a lot of headroom to be found in the Core 2 Duo. Earlier reports from around the web show the Intel Core 2 Duo E6300 regularly approaching or breaking the 3Ghz barrier. The E6300, with a default speed of 1.86Ghz, is currently Intel’s least expensive Core 2 Duo processor.
intel
The implications of these reports are enormous for investors in Intel. The high speeds reached by the E6300 show the scalability of the Core 2 Duo architecture, a large part of which is no doubt a part of Intel’s shift to a 65 nanometer manufacturing process. Smaller manufacturing processes for Intel should mean more chips per wafer, improved power consumption and lowered heat output per processor.

Analysts and enthusiasts are expecting AMD’s major shift to 65nm sometime in the middle of 2007. This gives Intel a comfortable lead and enough time to work out any cost or manufacturing inefficiencies as the company becomes more acquainted with the 65nm process. The benefits of the Intel Core 2 Duo and shift to 65nm should become more apparent as the company releases earnings in the first half of 2007. Intel has an opportunity to build consumer trust ahead of the 2007 holiday season.

There should be tremendous optimism in Intel if sales can improve and it can maintain a comfortable performance lead over AMD. Historians can take note that the last time Intel had such a scalable CPU as the E6300 was during the days of the Celeron 300A, a 300Mhz CPU that regularly hit speeds of 450Mhz or a 50% speed increase. The E6300 is regularly capable of moving from 1.86Ghz to 3Ghz, a 62% speed increase. During the days of the Celeron 300A, Intel was a dominant force over AMD.
cpu
I am a big fan of AMD’s Athlon XP products. As I have written in the past, it is hard for any company to follow up one hit with another, and even mighty Intel lost the performance crown during the last round of the CPU battle. With such rapid developments in technology, there is no telling who will control the CPU performance crown in the long-term.

With Microsoft Corporation's (MSFT) Windows Vista around the corner this month, I expect both Intel and AMD to benefit in 2007. Intel, however, appears to be in a better position to benefit from the new Microsoft OS, with a superior performing product in the short-term.

Disclaimer: The author owns 5000 shares of INTC purchased at an average price of $20.55.

INTC vs. AMD 1 yr chart

intc chart

Source: Intel Speeds Ahead of Advanced Micro Devices