15% Haircut, why?

Why is AMD down 15% in four trading days without any bad news whatsoever?

The answer is simple: To put the money in AMD is speculative, that makes it vulnerable to influences. In this situation, one has to remember that AMD is a member of many indexes where Intel is a major component, and Intel went down heavily. That means that even though the reason why Intel is down has been the competitive pressure AMD is putting on (meaning that AMD should be doing things extraordinarily well), the fact remains that beause of Intel the indexes where AMD and Intel are members are down. So, there is that bit of negative sentiment, that gets amplified and a sell-off happened. The following words are the explanation of this phenomenon.

1) AMD investment is speculative: I am convinced that AMD is going to take the absolute leadership of the processor market from Intel in about a year and a half. But the fact remains that AMD is NOT the leader today, that it hasn't been at the top for decades as Intel has. So it takes a leap of faith to believe that the semiconductor market is going to be changed so radically. Actually, there are solid rational reasons and for those in the know such as yours, truly, for it to be a simple prediction, but for the vast majority of investors and for those who handle most of the money in The Street, it is not a simple fact. While they don't understand the significance of advantages such as Direct Connect Architecture with Hyper Transport over the classical Front Side Bus, they at least can barely hint that AMD seems to be on a roll and put some money on it. But that conviction is not as solid as having seen Intel double and double over and over for decades, giving dividend yields in a reliable fashion. Other things equal, the money put into AMD is the money to "spare". That's why as soon as the Dow Jones or any index is down half of a percent or that a stock market recession looms in the horizon, due to bad economy, a political crisis, or the Federal Reserve raising the interest rate half of a percent, it always happen that the money put into AMD is seen as not safe and the urge to "secure the profits" arises.

2) Intel is being killed by AMD, the competitive situation of Intel is truly pathetic, and all negative options for its future are on top of the table, including bankruptcy. Thus Intel pulls down with some strength all the indexes it is a member of, carrying AMD down.

3) But is AMD's success what is taking down Intel!!: Yes, but Mr. Lemming Nilvestor and Joe Sixstock doesn't believe this despite all the evidence, because they are utterly unable to understand the evidence. And not even in a million years if Intel says that the market for computers or processors is weak. That fits very well into the formerly successful hard coded rule that if Intel is doing Ok., then the market for semiconductors is Ok., and viceversa.

4) But if AMD is still doing great and is Intel's main competitor, then the money that gets out of Intel has a natural place at AMD: No, not really. Intel and AMD may be the two players in their market, but they are companies as different as it gets: Intel appeals to the greedy investors looking for a predatory company that juices every possible penny from their customers, that ruthlessly squashes competition and has no morals. Technological Leadership? as long as it becomes earnings per share and dividends, otherwise, they couldn't care less. AMD is the opposite: A thrifty company that doesn't even aspire to milk the customers but to create an ecosystem where all can share the profits (look at Hector's speech). Note: Not being greedy is not an innefficient strategy, nor it is the aspiration of creating an ecosystem where all share the benefits, it is just a different strategy aiming at sustained growth through cooperation rather than in a zero-sum game (Intel's approach). More to the point, an investor looking for dividend yields may go to Intel but not AMD. Thus the money leaking out of Intel is *NOT* moving to AMD

5) There is also this issue of the historical transition from Intel to AMD. Whenever there is an underdog that manages to score the win against an intimidating opponent that looks as invincible as Intel, a lot of disrruptive processes have to happen. Disrruptive processes are difficult to predict, that's why those of us who are betting on AMD have the merit to gain 5X our investments, because through our Due Dilligence we understood some of those processes while others couldn't.

Look at http://drge.blogspot.com. That's the blog of a guy with multiple acclaimed university degrees. But he just can't accept that AMD could have a lead of perhaps 5 years above Intel... Aristotle: "It is the sign of an educated mind to entertain an idea without necessesarily accepting it", well, Dr. Ge couldn't entertain the thoughts that AMD is crapping Intel with both AMD64 and DCA/Hyper Transport at 90nm. He can't understand that Intel has lost successively in all of its attempts to diversify beyond their core products of processors: They were beaten to humilliation at the 3D graphics accelerator game some years ago, that despite appereances AMD has had the lead in processors since the Athlon 550 MHz in 1999, that the Pentium 4 approach of meaningless gigahertz was actually a doomed marketing response to a concrete technological challenge, that a company that is not able to understand Itanium's failure and keeps pumping billions more into that catastrophe without ever entertaining the idea of killing it for good can't possibly be well managed. The Dr. Ges are not able to understand that it takes years upon years to develop all the concrete performance advantages AMD has developed or is using: Strained Silicon On Insulator processes, AMD64, DCA/ccHT, multicores, Pacifica, etc. Meanwhile, Intel distracted and keeps distracting entire mid-size national budgets into dead ends such as the gigahertz obsession, the Itanium, 32 bits, Front Side Bus, etc; and the Dr. Ges keep thinking that all Intel has to do is to wave a wand and AMD will be dead. Dr. Ges don't understand that at Intel they haven't come up with nothing good in a very long while, that they are going back to the Pentium III (because the high gigahertz obsession in Pentium 4 derailed them from their evolution path) and keep being confident that Intel is going to keep succeeding in the platform business now that AMD broke their dominance in the processor market and they don't have nothing to leverage things such as the Centrino platform, V//V, or any buzzword they can come up with... because they don't see much more dynamic companies such as Broadcom, ATI and nVidia getting into platforms for the duration with far better offerings than what Intel can come up with...

6) Nevertheless, they have become good at Intel at selling "Blue Crystals", "Snake Oil", "Vaporware" and related products. They are good at promising, because they promise so much and deliver so little that that some people still believes them is remarkable. So, they have their IDF, pump Conroe, Merom, Woodcrest as the nukes that are going to destroy AMD (magically, because there is no indication about how that may happen) and panic ensues in some AMD investors. And to top it off, a good PR stunt of some rigged benchmarks and the panic waves add to the other phenomenons and induced a 15% haircut on AMD without that company having bad news at all and having concrete good news...

Now, this are the good news for us, the AMD investors: Once that the weakling money is out from AMD, the proportion of those of us who understand what is going on among the investors will increase and that will give the stock price stability with higher growth just as happened until mid Jnauary when the vapor downgrades began thanks to Wall Street gazing their greedy eyes in our direction. Learn the game: After a sell-off, stable growth for a while, until AMD becomes noticeable again, and the roller coaster will begin again, until another sell-off.

Another positive thing to mention of this episode is that management demonstrated calmness but just ignoring Intel's shows. They keep speaking not with words, but with facts, with products in the market that everyone can test and benchmark.