Friday, April 21, 2006

Quarterly review of my forecasts - April

The idea behind this blog is to improve my analysis about what is going on in the technology world. I leverage that knowledge in many ways, including investments and gambling in the stock market. I am the first person interested in finding mistakes, and I find that, in the spirit of the Free and Open Source software traditions, to be fully open allows a multitude of observers to come up with interesting ideas.

I have thought that I should, from time to time, review what I have forecasted with the intention of learning from past mistakes and successes. I may leave something aside by mistake, but so far my forecasts have been:

From an article of Jan 27:
"On the mean time, every company that is in partnership with AMD is doing excellent both in the market and stocks: Rambus, Soitec, Chartered, Innovative Silicon have all jumped ahead as a direct result of a deal with AMD, and perhaps even Broadcom (confirmation in the works) are doing great. Whereas Apple is next to dissapointing, and I guess that Dell would too.

Does anyone want to buy Dell $30 puts for February?"

All of those companies are still doing fantastic. And Dell is worse. Those puts may have given money depending on the exact purchasing and selling moments, in my case, I barely made even because I think that there was some manipulation of the books, what Sharikou calls the "week X", and other details, that spared the real bleed before options expiry. This counts as a mistake, because the right recommendation should have been March. It is suicidal to be imprecise with options, all three parameters while transacting have to be totally accounted for: Price, Strike Price and Experiation.

From March 04, about the price war, I mentioned that there are factors that make us think that costumers will keep preferring AMD products despite price discounts from Intel. Intel discounted aggressively the prices to clear its channel. The measure was so inneffectual that Intel's inventories grew, and allowed Henri Richard to stellarly bash Intel saying that yes, AMD has seen price slashing on Intel on low end products nobody wants to buy. Even with those discounts, AMD's demand proved as strong as to allow Gross Margins to improve 1.2% from 57.3% to 58.5%, larger Gross Margins than Intel's (!!); while at the same time, experiencing a market share increase that according to my latest estimations, was 1.5% to 2%, to reach about 22.75% global market share, that confirms the resilience, that is, the improvement in Brand Equity.

From March 09:
"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". The sell-off continued with a bump about Dellienware to less than pre-Q4 05 earnings report levels, incredible, as if AMD would have gone backwards. That total irrationality will be substituted by growth during this quarter, although not as high as $40.

About investment, March 31
Comparing AMD and Intel to two farmers, the stern and hard working attitude of AMD is very different to that of boisterous Intel: "Right now, we are in the harvesting season, all of what AMD sawn has grown and is ready to be turned into profits [that's why it is working so hard]. The neighbor doesn't have anything but weeds. There is still a lot of people who has faith in the gigantic neighbor, he says that in the remote corner it has the greatest grain ever grown in these fields, but that just seems to be him once again bragging about what he doesn't have. If his harvest were good, he would be very busy, as we are."

Recently, in "Riding the Roller Coaster", and "Conversation with the Ticker", I pointed out the lack of support for AMD after positive results induces a sell-off on momentum seekers and technical analysts that make it deeper. That's what happened just after the conference call. But this plunge had the benefit of relieving pressure from this stock, because it seems that it is a piece of shit, and that the company is not capable of challenging Intel. Under those two assumptions, AMD grows, because it is carried forward by the long term investors, breaking the downward momentum.

That's why it wouldn't be advisable to write covered AMD short term calls, because there exists a breakout to $37+ waiting to happen, but not even think about writing naked puts, the timing isn't dependable. To go long on options is too expensive too, it would be best to allow the pessimism to be fully incorporated into the 2008 and 2007 call options b4 going long on them. But alternatively, depending on some parameters, it may be possible to go short on Intel and to hedge writing puts if you feel the downward pressure has exhausted to milk some extra change money from your short position.

My predictions about the Core ยต-architecture regarding 64 bits (look for points 6 and 10) have been confirmed, indeed the recent Clovertown (dual Conroe) was seen running versions of 64 bits benchmarks as reported by Sharikou. If Intel added the REX prefix decoding to the simple decoders, then Conroe (Clovertown, Woodcrest, and Merom) would run 64 bits at top speed, but just as it was explained, the 64 bit architectural differences play well to Core's emphasis in reordering. If anything, I am surprised that we are talking of a mere 20% advancement in the higher credibility tests done after IDF, I am expecting around 30%, of course that Core has too many defficiencies. One of the things I don't buy is it being better power efficient, and that, without taking into account the bloated memory frequencies and FSB power consumption.

I wonder too who's Intel fooling with the "chinese story" of accumulating inventories on purpose in the case the extremely ambitious transition to 65nm on Conroe has a misshap, but taken at face value, confirms my thesis of the complexities of "Coredump".

On the other hand, Intel "beat the expectations" on the same sense that Dell had a fantastic Q4, they both went up to give back everything they went up and then some more. Nevertheless, AMD wasn't (so far) dragged down.

From "Intel down / AMD jeopardy"
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"

I thought the scenario of Intel pleasing Wall Street as moot to discuss, but it happened (very close to the 20 cents EPS and with a murky conference call, as predicted, by the way), thus no AMD tanking.

Another thing is that the market seems that indeed is down, perhaps Intel went too far in Europe, non-processor Intel businesses are also down, Sandisk reported down, the market for silicion manufacturing supplies is also down.

If you are curious to know, I over leveraged before IDF, so I have been painfully squeezing some gains with complex trades, mostly hedging to prevent a margin call in case of a catastrophe, and certainly, the latest reactions to the earnings reports haven't help.