Monday, April 17, 2006

Intel down will be interpreted as AMD's jeopardy

What would happen if Intel reports bad results?

For sure, AMD will tank. The market will interpret Intel's failure to even meet lowered mid quarter guidance as a crisis that will demand drastic measures, and Intel's desperation, although directly caused by AMD's superior all-across-the-board technology, won't be interpreted as AMD's possibilities, but as jeopardy.

With an Intel fighting for the survival of its monopoly, the market will perceive AMD as a riskier investment, with the extra risk not compensated by the confirmation of superior technology, improvements in brand equity and the demonstrated improved ability to supply and actually *sell* the products. I say this because all of these facts have been confirmed already by AMD's latest earnings report, that produced a 16% plunge (and counting), thus I don't see why the market will appreciate them better after Intel's report than what it is now.

Thus, AMD will go down even further.

Paradoxically, it seems that a positive result from Intel will ease the pressure against AMD, the market will just say:

"Oh, very well, so Intel is back on track, regaining market share from AMD. We are not going to downgrade AMD because giving back market share was already priced in, but perhaps we can analyze again forward earnings"

If the market does that, then it will give AMD a deserved 20x (forward) P/E and AMD will climb to more or less $34, which provided resistance to the thesis of giving back market share, Intel's price war before the introduction of Conroe, and the Conroe family effect on the competitive situation. Of course, this thing is moot because Intel won't report positive results.

But the market is very wrong: AMD has an 8-lane freeway completely clear to sell everything it manages to produce from here to the mass production of Conroe and derivatives, that we have calculated can't happen before 2007. Intel won't recourse to a price war (I comically demonstrated the absurdity of such price war here) other than to clear its channel, thus the margins will keep high, and earnings will soar. By the time Conroe pressure really affects the market, I am very confident that AMD's Grand Master architects, which are vastly superior to Intel's apprentices, will come up with newer appealing products superior to the NGMAs.

And that's accepting the claims that Conroe is superior to the expected FXs for the 2H, which are very dubious; giving Intel the benefit of the doubt about being able to cope with the complexity of the Corpse ยต-arch., that it manages to raise the capital needed to build the fabs it needs to mass produce them ("Copy Exact!" seems to have proved extremely inflexible due to the mix of miniaturization levels in Intel products (Itaniums, the flagship high end product is produced at 130nm!!)), and that AMD doesn't kill them before with a smash such as 16Mb L3 caches (based on Z-Ram).

But, as Lord John Maynard Keynes, 1st Baron Keynes of Tilton, famously summarized: "The market can stay irrational longer than you can stay solvent"


Anonymous said...

Not necesarily if Intel goes down AMD has to go up, and vice versa.

When the price war (which is not really a price war but a Price reduction to clear inventories) was announced, BOTH Intel and AMD's share prices dropped. The same happens each time some analysts predicts a slowdown in sales of computers. This is Finances 101.

That being said, this is what is expected from Intel on Wed.:

George said...

Look At AMD's Anual report it is printed on cheap paper while intels is glossy 4 color. AMD is a tight ship because they would be dead if they were not.