Advanced Micro Devices a Sell, Intel Doing Well

Includes: AMD, INTC
by: Aniq Rahman

Sunnyvale, California chipmaker, Advanced Micro Devices, Inc. (NASDAQ:AMD) isn't looking too mighty against industry Goliath, Intel (NASDAQ:INTC) these days. Especially after a reported $611 million loss on revenues totaling $1.23 billion.

The loss includes charges related to the ATI acquisition in the amount of $113 million, but is mainly a result of the increasing competition with Intel in the microprocessor market. The company said that its Q1 margins were 31%, down from 40% in Q4 2006 and down from 59% in Q1 2006. "The decrease from the prior quarter was largely due to significantly lower microprocessor unit shipments, lower microprocessor average selling prices (ASPs), and the inclusion of the former ATI operations, which generally have lower-margin products, for the entire quarter, AMD said.

So what exactly does this mean for AMD? Well, it means that if you're unlucky enough to own some, you should probably heed the analyst "sell" ratings. AMD is also perhaps putting itself up on the table for bids as CEO Hector Ruiz says that they might be in contention to work out a deal with private equity. Soon after saying so, their stock went up to $14.45 in extending trading from a $12.99 gut punch of 9% loss [Bloomberg]. I don't exactly know how getting bought up by private equity is going to help them as a company though. AMD's ATI acquisition might be leading them to overextend their place in the market and may be taking valuable resources that could have given them the edge to knock out more of Intel's market share or perhaps acquire a lead in the processor market.

Recent reports are also showing that AMD is essentially fudging its way in creating new "cutting edge" products and not doing what is necessarily in the best interest of the consumer. For example, with regards to its latest 3 GHz Opteron line, power consumption is way up (up to 120 watts) whereas the efficiency lines in the lower frequency 2.8 GHz and 2.6 GHz are 95 watts and 68 watts, respectively [ZD Net]. AMD's server line is essentially facing an epitaph if it keeps up these antics and furthermore, it's in no position to slack with Intel's upcoming quad-core Tigerton and its current offering of dual- and quad-core Xeons. The announced Barcelona chip claims to be able to outperform and outrun the upcoming Intel line, but only time will tell.

Intel's lineup is just undeniably more solid, including an announced twenty new products at the Intel Developer Forum in Beijing. Their new "system-on-a-chip" goods are making some exciting claims, including one that expects a 45% reduction in chip size and 20% reduction in power draw versus a four-chip design.

Intel's announcement last month about its Penryn and Nehalem processors is also giving it some added momentum in its pillaging of AMD. The fact of the matter is that AMD doesn't have the resources to compete with Intel's product line.

AMD has been popular among techies for providing good value technology at a fraction of Intel's pricing with architectures and speeds which were comparable or surpassed Intel processors at times. However, as AMD grew, their product line seemed to also get caught up in a bit of a whirl. The popular Athlon line made its way into performance PCs while brands like the Duron and Sempron were created to battle the low-cost (and low performance) Intel Celerons (example: benchmarks from AMD Sempron vs. Intel Celeron D).

Intel also is in the works of expanding, including a proposed investment of $2.5 billion to set up shop in Northern China with the most advanced semiconductor fab in the country. It's a massive operation and will entail hiring over 6,000 employees [PhysOrg]. Furthermore, Intel is capitalizing on their partnership with Apple (NASDAQ:AAPL), who have seen a huge increase in their computer sales since switching to an Intel-based configuration.

Given continued growth, relative market stability, consensus reports on a superior product base and legitimate outlook, Intel is doing well and will continue to do well. Conversely, AMD isn't doing so hot right now and will need a lot of corporate restructuring, a methodology revision and massive resource allocation to keep a bright future. If you have AMD, get out while you're still somewhat safe -- a major hit may be headed your way. Take your money and maybe consider putting some of it towards more worthy causes (like Intel).

AMD/INTC 1-yr comparison chart

Disclosure: none