Intel Speeds Ahead of Advanced Micro Devices

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.

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.

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

Comments

[Macbth:]

When you are talking about big servers and big computers your right – but the average computer and person doesn’t need all this power – they need economical of scale. This is where AMD comes in with their chips.

2007 Jan 01 09:00 AM

[WC Whiner:]

Me, I don't see the big Vista bump. I look at the economic data, which so far indeed point to a soft landing, and don't like a naked long in anything as leveraged to consumption as INTC. Turn this into a paired trade where you short AMD or at least a basket of other techs you dislike (UMC at $3.50? I've been selling, too), and I'm there with you.

Crossposted to rawgreed.

2007 Jan 01 01:32 PM

[Da_Bronx_Guy:]

Andy-

Are you holding any other GOLD positions? Also, what price would you hold INTC until you begin to SELL?
Thank you. Ray Yee

2007 Jan 01 02:31 PM

[Riverboat:]

I've just purchased a new PC, Intel Core2Duo, and saw the head-to-head competition between Intel and AMD at the big online web order sites: HPQ and DELL. The big question is will Vista drive a new round of corporate and personal PC upgrades? If so, when. My personal opinion is that MS XP is a mature and stable platform that corporations will be reluctant to leave. Individuals also see little value in an expensive upgrade to get Vista; MS 2000, XP and XP Media Center present few reasons to hasten their departure.
Performance and Security bugs have been fairly well resolved or mitigated.

My call, if MS schedules a date for ceasing support of Windows 2000 or XP, then go long HPQ.

2007 Jan 01 10:12 PM

[Riverboat:]

A techie article on multi core cpus' here. No nod as to whose ahead: Intel or AMD.

"...Dual-core desktop blues
Advances in end-user hardware outstrip software support ..."

www.infoworld.com/arti...

If Vista has robust support for multiple processors - Core2or3or4ormoreDuo - and if this adds enough value for corporations and individuals, then Vista, and thus Intel and/or AMD, will benefit.

Computer hardware advances have outpaced software advances for going on 50 years now, nothing new in that news. Does anyone know about Vista's multi-thread ability? That knowledge has value.

2007 Jan 01 11:17 PM

[Riverboat:]

I spoke too quick. Microsoft (MS) has already scheduled the demise of Windows 2000. MS released Internet Explorer 7 (IE7) and it does not support Win 2000.


Here is the techie jargon for bye-bye Win 2000:

"...There are two important events that will happen to the support policy for Windows 2000 after June 30th of this year.

First, support for both IE 5.01 SP3 and IE 6 SP1 on Windows 2000 SP3 will expire. Users running IE 5.01 or IE 6 SP1 on Windows 2000 should upgrade to Windows 2000 SP4 in order to continue to receive security updates.

Second, Windows 2000 SP4 moves from mainstream to extended support. The key difference between mainstream support and extended support which I think is most relevant to this audience is this quote from the lifecycle site: "Microsoft will not accept requests for warranty support, design changes, or new features during the Extended support phase..."

But they (MS) will support security fixes for Win 2000.

Is MS gently nudging Win 2000 users to Vista?
You bet they are and Win XP is next, my guess.
Start thinking Intel long.

2007 Jan 02 03:32 AM

[Tom B:]

AMD ceased to be "hip" when they failed to outbid INTC for the AAPL contract. Though less than 10% of the PC market, AAPL gets a lot of "eyeballs". AMD will fail, just like IBM and MOT failed when they tried to take on Intel.

2007 Jan 02 10:14 AM

[Macbth:]

Thomas,
There was no bidding war for the Apple contract.
I don’t believe INTC outbid AMD for AAPL.
Jobs took the name everybody knows.
Only techies and investors really know about AMD, Intel is a household name.
Jobs wants to sell Macs-the Intel name helps- AMD wouldn't.
How many AMD’s commercials do you see compared to Intel’s? 100 to 1!

2007 Jan 02 11:16 AM

[WC Whiner:]

Er, what? My wife is a pop-culture addict, so I get a good sample. In a given week I see 0 AMD commercials on the teevee, versus maybe 10 INTC (mostly those nifty Core dancers).

There is that one AMD billboard down the 101 South, and a few bus-stop posters, but on television I see nothing of theirs at all.

I don't know what you're watching. What am I missing?

2007 Jan 04 08:24 PM