Monday, July 17, 2006

Sell AMD: My best advice

[Updated 2 times]

Time to sell, folks.

[Update]
A brief summary:

Ever since the Athlon, AMD has had the best product. All of today AMD plans assumed that they will keep having the best product. But Intel comes with Conroe, and there is a split between Mobile/Desktop/uniprocessor server and multiprocessor server best processors. So AMD plans are not valid and a contraction comes.
[/Update]

A not so brief summary:

Intel's new products will outcompete dramatically every single processor AMD offering. Extra multi processor server profits for AMD due to the excellent growth in that segment can not compensate the obliteration of the comparatively huge profit volumes of single processor systems missing. With such cut in revenues and especially profits, AMD's plans to finance capacity expansion to bring more economies of scale will be stopped, and probably also its ability to come with improved products and catch up to Intel. On top of that, it seems that indeed the market for computers is commoditized and weak; with the aggravated factor of Vista probably coming making emphasis in 32 bit computing.

This competitiveness stumble was completely un-anticipated by AMD's management, which was even dismissive of the threat this represents. Thus, either management made a great mistake, or misled on purpose, so it doesn't deserve further faith.

The jeopardy is very real, because the much deeper underlying reality of Intel's advantages due to economies of scale now have a timeframe to impose over AMD's recent market/revenue/mind share gains until AMD's bankruptcy.

These risks are already very high, which would demand very low P/E multipliers, but worse yet, all the money earned will be reinvested in capacity and technology, in a feedback loop of risk.

As if the previous wasn't enough, the economy is weak, the Federal Reserve is fighting against inflation, energy prices record high and the promotion to nuclear power of Iran and North Korea may precipitate two major new conflicts.

Reasons in Detail:

Current AMD competitive advantages: AMD lags in everything but:

* Processor Interconnect
* AMD64
* The integrated memory controller's help with virtualization
* Partners
* Brand Equity
* And sSOI is merely a tie, at best, to Intel's Silicon Process

What has AMD done with these advantages?

The processor interconnect enables multi processor systems, that we have already stated that are not enough to sustain everything else. Allows for coprocessors, a market that has been slow to emerge, and allows for even graphics 3d engine coprocessors, that not only don't exist, but that merely today the talk about them has began. Thus, the coprocessors are a perdurable competitive advantage, at least until Intel launches CSI, but that will not help the company to solve its current stumble. Scuba diving, I can be happy if my friends promise me an air tank to keep submerged for another two hours, but if I my air ran out, and I have to wait underwater ten more minutes for the two hours tank, I would be dead by the time it arrives. AMD also needs to breathe.

AMD64's technology is mesmerizing. It took the mess that Intel made of x86 and made it elegant. Its implementation is even better. Today, every AMD64 processor is faster at 64 bits than the same program compiled for 32 bits, as it should, without adding appreciable cost to the processor, which is no small feat, opposed to the possibly microcode-interpreted Intel EM64T that is not even supported in flagship (?) products such as Yonah "Core Duo" and Sossaman servers (!). This should have been a cash cow for AMD, but the AMD64 marketing has been preposterous.

AMD agrees with me on its importance, otherwise it wouldn't have implemented it so superbly in the processors from the Sempron on, moreover, according to the latest AMD SEC 10-Q filing:

We must achieve further market acceptance of our 64-bit technology, AMD64, or we will be materially adversely affected.
Our AMD Opteron processors are criticalto our strategy[.] Similarly, our AMD Turion 64 processors are critical[.] Increasing market acceptance of these processors, our AMD Athlon 64 processors for desktops and the AMD64 technology on which they are based is subject to risks and uncertainties including:
• the continued support of operating system and application program providers for our 64-bit instruction set, including timely development of 64-bit software applications and applications that can take advantage of the functionality of our dual-core processors;
• our ability to produce these processors [...] timely[,] in the volume and with the performance and feature set required [...]
• the availability, performance and feature set of motherboards, memory and chipsets designed for these processors, in the volume and with the performance and feature set required by our customers.
If we are unable to achieve further market acceptance of our AMD64 technology, we would be materially adversely affected.
AMD may help or hinder a lot the market to get enthusiastic about AMD64. What has AMD done about it?

I keep saying it: AMD is losing its efforts trying to convince Microsoft to support AMD64. The real way to have Microsoft on board on AMD64 is to threaten it with Open Source and Linux competitiveness. But AMD is not doing the all-out effort that it requires. So far, practical and pervasive 64 bits has been the sole preserve of AMD, thus every effort AMD would have expent on 64 bit market development would have been reverted in larger markets.

It makes sense, even today, for AMD to identify the projects in which the most 64 bit market development could be obtained by the smallest budgets. Free and Open Source Software, where it is trivial to go 64 bits by just recompiling in most cases, is an obvious choice. It also makes sense to fund projects so that they first provide AMD64 functionality and then 32 bits. Does AMD want to increase adoption of Turion 64 bits? Fund Orinoco with one million dollars to make Linux support all Turion64 wireless chipsets. There aren't that many chipsets, thus perhaps not even 1 M$ is needed; and then, every Linux user will feel extremely enthusiastic about making its default the 64 bits, Linux users will revolt against the limited Core Duo 32 bits, will demand more compatibility, and a whole virtuous cycle of AMD64 acceptance would occur. By the time Intel catches up to AMD, AMD may have biased 64 bits in laptops to AMD64 by extensions that improve power savings, preserving competitive advantages. A project such as this may kickstart a whole ecosystem of AMD64 platforms with the same economics as Centrino, but with variety!

What is happening in reality? that the Linux Turion 64 owner is left on its own. That is stupid.

Beyond Open Source, it is clear that AMD64's marketing efforts have failed miserably, because the whole world seems to think that it is only something related to servers and 64 bit computing, which hides the important benefits of the widened register file.

AMD missed so many opportunities to strike it rich with AMD64 that it gave Intel the chance to finally catch up. And by not putting pressure on Microsoft (through Free/Open Source Software AMD64 support) didn't force a commitment to 64 bits from them, now, Microsoft must be backpedalling with everything it's got about the 64 bits issue: Since Conroes run slower in 64 bits than 32 bits, Vista Premium requiring 64 bits will make Vista to be perceived even more as a computer retardant than what it already is. Why would they bother to port zillions of drivers? And not that they could, the real problem is the lacklustre enthusiasm for doing the Vista 64 bit drivers from hardware and software providers. In the end, it will be much simpler for everyone to patch everything with page address extensions and keep doing 32 bit bussines as usual. That it will suck big time? yeah, but who cares if people buy it?, in three years the complexity of Vista "supporting" 8 GB through PAE will be not a defect, but a feature, or the excuse for yet another Service Pack. I already mentioned this thesis here, I would say that the prediction has been materializing.

In conclusion, AMD doesn't help with the adoption of AMD64, and the market doesn't adopt it. AMD only offers it.

AMD's virtualization technology is another no-small-feat advantage, but even harder to market. I had quite a number of annoyances trying to figure out what is exactly the support for virtualization that AM2 processors offer. I couldn't get to its specification, there were dead links in amd.com, so I still don't know much more about it than earlier in the year when I wrote "Pacífica Vs. Vanderpool"; but being Pacífica much better than Intel's Vanderpool, it made my heart to sink to read the following about Xen, a Free/Open Source Software Project, perhaps the second most important virtualization solutions provider in the world, right after VMWare:
1.4. Does Xen support Microsoft Windows?

The paravirtualized approach we use to get such high performance has not been usable directly for Windows to date. However Xen 3.0 added Intel VT-x support to enable the running of unmodified guest operating systems, including Windows XP & 2003 Server, using hardware virtualization technology. We are working on implementing support for the equivalent AMD Pacifica technology.
So, Xen leverages Vanderpool to run Windows but can't do the same with Pacífica. Ladies and Gentlemen, there is no justification for this screw-up. I wonder if the same difficulty I experience to get hard specification data from AMD to evaluate its technologies is shared by Xen developers. It is absolutely stupid to expend so many millions of dollars into developing, implementing, and announcing to the world the Pacífica virtualization support in AM2 if you fail so miserably at getting the ultra-cheap ultra-important Open Source project to support your technology and thus guarantee its crucial acceptance. It is slightly off topic, but the reason why I could learn so much about the Itanium architecture is because Intel did a wonderful job of making available all of its technical documentation; it also financed Linux, the FSF, and almost everybody doing GPL to the death to get on the IA-64 ship. I very well remember that the first protos of Itanium (Merced), the processor as a board full of circuits, ended up in Linux developer organizations to make sure they could go forward with development. There is no equivalent in AMD's efforts, actually, AMD hinders development with its inappropriate web site.

In the latest 10-Q SEC filing already linked, AMD also mentions the following:
Intel exerts substantial influence[.] Because of its dominant position[,] Intel has been able to control x86 [...] standards and dictate the type of products the microprocessor market requires of Intel’s competitors. Intel also dominates the [...] chipsets, graphics chips, motherboards and other components[.] As a result, OEMs that purchase microprocessors for computer systems are highly dependent on Intel, less innovative on their own and, to a large extent, are distributors of Intel technology. Additionally, Intel is able to drive de facto standards for x86 microprocessors that could cause us and other companies to have delayed access to such standards.
I totally agree: Any tech. company that wants to be innovative can't just be another Intel pushover. That's why they it's so exciting all the possibilities of nVidia, ATI, Broadcom, Marvell, Sun Microsystems, IBM, SOITEC, etc. all joining their combined creativity, market courage, money and channels to AMD's offerings. But perhaps these companies are just the mice having a party when the cat is asleep. With the utter uncompetitiveness of AMD microprocessors once Intel rolls out debugged Conroes, perhaps a shitty Intel integrated video (de)accelerator will cream an nVidia engine, at least in price. The times for a second comming of malignant un-innovative companies such as Dell have arrived. All of a sudden an XPS looks sexy. All it takes is to be a faithful Intel lacay to be "successful" as our textbook example, Dell, shows. Dell doing AMD multiprocessor systems? forget it. Empty promises, Emtpy announcements. The heat is on for the "back to school" season already, if Dell wanted to announce AMD consumer products, what would it be waiting for? Christmas? This is Lucy once again coming back to its true nature.

It is definitely cooler to say "I bought an AMD", but it won't for long, unless Torrenza and 4x4 really catch fire, which I seriously doubt. There are enourmous obstacles to develop software to take advantage of multiprocessing that will not go away soon. Look at what happens in Gaming: An FX-57 has quite acceptable performance, almost as good as an FX-60 that has TWO cores, because it is marginally faster (2.8 GHz vs. the 2.6 GHz of the FX-60). Gaming makes marginal use of the extra core, like 30%. AMD is asking, to justify the extra expense and power consumption, that applications all of a sudden make use of not 1.3 cores, but 3.1, and worse yet, for a technology that only they have (remember AMD64 and AMD-V). Of course that it will provide some enthusiasm, but limited.

This whole post assumes that Intel is willing to do what I said it wouldn't, that is, a real price war. What has changed is that Intel now commands the upper ground. Not just the Conroe Extreme, but the second, and even the third member of the family, the 2MB L2 cache, beat the FX-62. The assumption changes the whole game: Every percent that Intel regains in market share means at the very least, three and a half percents less for AMD. The limited production of Conroes is more than enough to wash out AMD premiums, and the problem only gets worse as we look into the future.

I had high expectations about the K8L, the quad cores, etc. Until I realized that there was a seriously weak issue: The minuscule L3 cache. Why? Because AMD doesn't have the daring to try a multi chip single package processor, in which 4MB or 8MB L3 cache can be put off-chip as the L2 cache in the Pentium-Pro.

Earlier in the year, I thought that AMD was sandbagging with the 65nm schedule, I won't make the same mistake with the processor roadmaps. AMD hasn't crossed the 3GHz, no hurrying of 65nm processors.

I had faith in AMD's management, I thought they had an answer we didn't know about Conroe. But it has been five months since the first serious talk about Conroe, and still no answer, worse, denial.

Leaving everything hanging on the thread of Intel not being able to debug Conroe is not responsible.

I earlier thought that AMD was the leader of a world-changing initiative: To convert the processor monopoly into an ecosystem of innovation. But although that is what they are trying, and had their chances, but the people at AMD are just humans that were caught by surprise.

20 comments:

Anonymous said...

You are such a fair weather investor.

Intel is a shrink ahead of AMD at this moment, so what of it?

They should have 50-60% better performance but do they?

No, not 50-60% better. So it is obvious to everyone but you that AMD will catch up with its next shrink.

Anonymous said...

historically, process shrink can increase freq by about 30%. Assuming this is true for AMD's 65nm, then the shrank unit may match the current Conroe top bin performance, but by then, Conroe top bin will be at least 15% better than what will be released in July. Intel will continue to hold the performance leadership.

Anonymous said...

I agree you seem to be a fair weather investor.

You are an intelligent person, but you look at things too much through a microscope.

There is more to business then just having "the best" product....whatever that means...

Can you honestly expect Intel to be so incompetent that after all of these years they couldn't bring out a faster product? I think there would be reason to worry if after a year or 2 AMD just struggled against Intel with their tech, but it hasn't got there yet....there should be concern, but not worry....

If AMD can match Intel on performance by clock speed increases(before K8L), that should be really good. What determines greatness is not how well one performs when things are going well, but how one holds up when things are not going well. Intel proved itself not to be good when things are going poorly, now it is AMD's turn. If AMD can hold up respectfully, then by the time they have a real answer, things should go well for AMD.

Alot of these know nothing analysts still think it is 1990 something and think that AMD's gains are going to be erased by Intel's performance boost. Wrong. AMD gained street credibility through their Opteron processors. People in the server market aren't going to just get up and move to Intel because they have a "better" processor. These are long term purchases, with long term thinking, unlike the fickle desktop and laptop markets. That's the simple answer why AMD is here to stay.

I could give a litany of answers why AMD is still a solid company, but that doesn't really matter. If you have strategic or personal reasons for wanting to sell AMD, then I can understand. But to think AMD is not a good long term prospect because of some performance boost is a gross miscalculation of the situation.

hotpoco99 said...

It took Intel more than a year to respond to AMD's superior AMD64, and that by the good fortune of Israeli engineers already working on low-power processors. I'll give AMD 6 months to respond to WCM, and I do think AMD will succeed. Is a 6-month response fair enough vs Intel's >one year response to AMD64?


Ask yourself this: Is AMD better off today than they were a year ago? A year ago when you were so optimistic of AMD's potential?



Does AMD have better product offerings than a year ago? Better manufacturing capacity? More partners? More OEMs? More marketing? More exposure in HPCs? Is a duopoly now more likely than before?



And even if each and everyone of Intel's processors are superior to AMD's today, does this instantaneously stop all of AMD's sales? Remember that we were all aghast at Joe-Six-Pack who would buy Intel's junk even when AMD's were cheaper and better. Could it be possible that AMD would survive and do well in the interim 6 months relying on the Joe-Six-Packs of the world?

Anonymous said...

"AMD is losing its efforts trying to convince Microsoft to support AMD64."

I quite disagree with this.

Dave Cutler, the person behind NT was also behind the project for XP 64 and he worked very closely with AMD. You can find a video of him endorsing AMD in AMD's website. Then Microsoft asked Intel to clone the 64 bit extensions that AMD used because they didnt want to support 2 totally different 64bit implementations.

Eddie said...

Those who call me a "fair weather investor" may need to know that my last purchase was when AMD declined from $42 to $40, that I then bought short term calls, lost, lost, lost and lost, until I started to write covered calls to prevent a margin call, and kept losing. I lost two thirds of all the money I invested in AMD.

Why?

Because my research pointed in the direction of AMD being a solid, good company, that an answer to Conroe would come inminently.

But I finally realized that AMD doesn't have an answer for Conroe. Thus AMD's management was caught off-guard.

I am only pissed off at myself having been slower to sell than the insiders.

I learned my lesson: Invest only in greedy companies, with significant insider stakes, in markets not commoditized, and when the company does the same good job in developing products as in marketing them.

AMD only had good products, failed at all other stuff.

Eddie said...

With so many Intel processors without EM64T, with Intel's flagship products running slower at 64 bits, I think Microsoft can not afford to really make Vista 64 bits. In any case, point me to Microsoft stating unequivocally that without 64 bits you will miss the best of Vista, and I will start to research on that in depth. So far, they are increasingly hesitant about it.

The chain was: AMD provided a bit of support to Linux, imitating what Intel did with Itanium. Linux got it, and Microsoft understood that it had to do AMD64, couldn't allow Linux to gain such a foothold. It helped tremendously that AMD64 is fundamentally good. Then, Microsoft bluntly told Intel: It is AMD64, not Itanium. Intel uncovered Yamhill (EM64T).

Anonymous said...

Hi eddie,

I was the guy who wrote a long post about AMD being a solid company still, and accusing you of being a fair weather investor. However, from what I read it seems like you have a shorter time frame in mind then I do.

When I invest, I have a longer time frame in mind, roughly 5-10 years. I bought a lot of AMD around the 2003-2004 time frame and I'm very happy. I hadn't bought any stock since because of money reasons and price, but I still like the company.

When I was backing up the truck around $7, everyone was telling me that AMD was going Bankrupt and it was crazy. AMD was bleeding red as far as money, and Itanium was going to bury them of course...I knew that AMD was in a shaky situation and it was do or die, but I knew they had the right ingredients to pull it off.

When I saw the stock around $42 I was really really tempted to sell, but I kept on thinking how much I liked the company. I also think there is going to be a big broader upgrade cycle when Vistas comes out. My value has eroded greatly since it is down to $20, but you know what? I haven't lost or gain anything because I haven't sold, and my position is still good. Even though I didn't sell at $42, and it is down at $20, I still see a lot of potential in the company.

I was a little scared when I bought the stock when K8 just came out. But this performance stuff that Intel came out with, it concerns me but doesn't bother me at all. Intel has a lot of negatives still that they need to resolve. I could remember when people were saying that this is the end of Intel at the beginning of the year, but when Core 2 Duo came out(pre-released benchmarks rather), now it is the other way around?? Intel may have won a battle, but there is still a lot of the war that needs to be fought.


Yeah this investing stuff is tough, and investing in the processor market is doubly tough since it is a very cyclical industry, vulnerable to over speculation. Even though I'm doing fine, I know that I could lose everything in the end. However, I felt I have learned a lot from the expericnce and can take it investing somewhere else.

I hope things work out better for you. I look at investing as a very personal thing, and you can't really tell someone how they should do it. But, just looking at your own experiences, if I thought a company was good at $50, I would definitely buy it at $25. I would be thinking "Wow!! What a bargain!!" I'm by no means telling you to do that, or giving you direct advice, because I'm not a financial guy(nor do I want legal responsibility, so ask your financial advisor about these matters). I'm just illustrating a different philosophy. I'm saying if a price of a stock changes so drastically in a couple of months, then you need to see why that is. Did the company really change all that much?? Can a company really change in a couple of months??

Before 9/11 Defense stocks were down severely, but in a matter of days after 9/11 they shot up. So did those companies really stink before 9/11??? Oh by the way, I don't like options(in other things that is different) in stocks...I think it is gambling...but that is my personal opinion....I don't really believe in Efficient Market Theory....


Again, I hope things work out better for you and you find the investing philosophy that works for you.

Anonymous said...

"Intel is a shrink ahead of AMD at this moment, so what of it?

They should have 50-60% better performance but do they?"

A shrink does not equate to 30-60% performance. At a transistor level it generally corresponds to 25-30% performance, but this doesn't necessarly translate linearly into chip performance. If you don't beleive this just look at the specs on AMD's intial 65nm products.

Sharikou, Ph. D said...

What you quoted off AMD's 10K was there 10 years ago. But things have changed foundamentally.

I don't have to repeat the details. I simply don't know how Intel can walk out 2007 in one piece.

Anonymous said...

The problem is when AMD was at 40-45 most insiders had priced in continued market share gain and greater than double digit revenue growth. So flat growth and simplyin maintaining market share would not support/justify the high price.

While trailing P/E is not always the most reliable indicator, I believe it was in the 80-100 range when AMD was up over 40, which in an industry that is normally around 20-30 now, assumes AMD would increase EPS by 3-5X which in my mind was not reasonable. That combined with upcoming price war with Intel forced share price down which puts the P/E into a more reasonable range.

The other thing to keep in mind is that AMD is no longer a small company, so it cannot command large P/E trailing multiples like some smaller companies can, unless it can continue to increase earnings/share (which it can only do by making continue market share inroads and/or by increasing gross margins)

At this point as semiconductor market has matured (industry growth rates <10%/year) any large market cap company is not going to likely return large ROI's especially as gross margins have started dropping now (unless you foresee a large market share change coming).

From investment standpoint, you could look at hedging with options (puts/calls) which would cap your exposure but that cuts into your potential returns (and if you are doing things on margin it would seem you are looking for high return).

Eddie said...

<<
Can you honestly expect Intel to be so incompetent that after all of these years they couldn't bring out a faster product?
>>

No, I didn't. I expected a continuation of Yonah. Probably something better than AMD's. Then it came IDF, and when I first heard of the details of Conroe, I thought that they again took the wrong path trying to extract more performance of the basic Pentium Pro arch. I still don't quite understand how they managed to do that, worse, to do it in a way that creams AMD. What is most puzzling of all to me, is how Conroe can be so power efficient having all those execution units that are only very seldomly used. That transistor technology/intra processor power management must be very good.

AMD doesn't have a year or two to spare behind Intel. Where would be the money for the Fabs to ramp? And after 5 months of IDF we still don't have not even a plan to answer to Conroe, not even acknowledgement of the threat.

<<
If AMD can hold up respectfully, then by the time they have a real answer, things should go well for AMD
>>

AMD held its ground last quarter. This quarter, it cracked. We have to wait for the report, but less than $0.30 EPS mean grave concerns. $0.3 competing against Pentium4s in Q2 means that quarters of $0.4 competing against some Conroes will be very difficult, AMD, at a P/E multiplier of 17 needs to earn $1.25 per year. Thus, not even current AMD price is justified from the P/E ratio; with this kind of risks, the market won't even give that P/E. I am being serious when I say that AMD may go below book value.

<<
AMD gained [...] credibility through [...] Opteron[.] People in the server market aren't going to just get up and move to Intel because they have a "better" processor. These are long term purchases, with long term thinking, [...] that's the simple answer why AMD is here to stay.
>>

I commend your optimism. But if Google is purchasing Intel servers again, there is no hope for AMD. In any case, again, servers is not enough to compensate for everything else.

<<
I could give a litany of answers why AMD is still a solid company
>>

I bet you that I could give you a litany of answers why AMD is still a solid company on top of your litany with things that you haven't think about, but...

<<
to think AMD is not a good long term prospect because of some performance boost is a gross miscalculation of the situation.
>>

you are not following my thesis: AMD's strategy assumed to have the desktop/mobile front well covered. Now, it is not!, horror!, not even the uniprocessor server. AMD right now doesn't have a strategy. It necessarily follows that a retreat will happen. That is enough reason to advise to sell.

Eddie said...

<<
I'll give AMD 6 months to respond to WCM, and I do think AMD will succeed. Is a 6-month response fair enough vs Intel's >one year response to AMD64?
>>

AMD should have at least announced that they were studying Conroe (Merom/Woodcrest) to come up with an answer, because that is the single most important external factor to AMD right now.

Management is mum. That leads me to think that they don't know what to do. The insiders sell. That confirms to my satisfaction my suspicion.

<<
Is AMD better off today than they were a year ago?
>>

Oh, yes! read any other post in this blog!. That's why I held. But then I awoke to the facts that I mentioned in this post.

<<
Does AMD have better product offerings than a year ago?
>>

Yes, yes, yes, but let me reiterate: Intel got so much better!

<<
Could it be possible that AMD would survive and do well in the interim 6 months relying on the Joe-Six-Packs of the world?
>>

I can assure you that it will take much longer than six months to put in the market something comparable to Conroe (not a dual processor system, something comparable), this is no "interim" problem. By the time it gets "solved" Intel may have already CSI.

Eddie said...

<<
AMD was bleeding red as far as money, and Itanium was going to bury them of course...I knew that AMD was in a shaky situation and it was do or die, but I knew they had the right ingredients to pull it off
>>

My hat's off to you (actually my Opteron Baseball Cap). I had a similar experience in 2000/2001: After studying so much Itanium, I came across AMD64 and understood that it was so much better, that basically I had lost all my efforts learning about an architecture that was going nowhere (Itanium).

Sunday morning I had a similar realization, AMD is not going anywhere before coming up with an answer to Conroe which they don't have right now.

<<
When I saw the stock around $42 I was really really tempted to sell, but I kept on thinking how much I liked the company
>>

I liked everything about AMD in February. I kept doing calculations that pointed out that AMD was at least $62, because it was growing in an exponential way and deserved to have not a 7 to 1 market cap to Intel, but 3 to 1, eventually, reflecting a near future 75% to 25% revenue market share reality.

<<
there is still a lot of the war that needs to be fought
>>

Precisely, that is risk, uncertainty, things that cheapen stock prices.

You know what? I don't believe that the "long term" exists for technology companies investment. In this area, the time frames are one year... a tech company may be great today, and tomorrow stink, if something crucial gets developed.

Eddie said...

<<
What you quoted off AMD's 10K was there 10 years ago. But things have changed foundamentally.

I don't have to repeat the details. I simply don't know how Intel can walk out 2007 in one piece.
>>

Sharikou:
Intel deserves a separate analysis. The fact of the matter is that Intel struggling for its survival or struggling to kill AMD both advise to sell AMD.

I like the idea of Intel not being able to ramp fast, of Conroe (Merom/Woodcrest) being buggy, of the channel not selling Conroes cheap but very expensive, of Intel dessisting of a price war because they hurt themselves three times more; but they have no chance, they have to keep the dumping.

Read this post: Alpha and Beta Bloody Fight

jack0fspeed said...

Eddie,

A few thoughts for consideration.

3 THINGS YOU CAN HANG YOUR HAT ON AS AN AMD INVESTOR:

1. AMD is in command on servers. All trends point to that trend continuing. In fact, that market only grows as 4P is the single fastest growing segment of the server market. There is an important reason for that. AMD is putting out a product that can help enterprise servers reduce power and volume. High performance 64 bit and 32 support is crucial in this market.

Woodcrest is only trying to win the very low end of the server market. Itanium is supposed to be the big iron competitor.

Opteron can and will continue to grow. If AMD can win their %30 server marketshare target this year, they have a foundation upon which they can build a business that will be strong for the foreseable future. That will be true no matter what happens in the other segments.

2. With the imminent expansion of the Dell product line, the market is wide open. The importance of this cannot be overstated. When I started investing in AMD a year and a half ago, Intel had AMD locked out of large segments of the channel and supply chain. That is not so anymore. Right now, AMD can effectively compete on price-performance in desktop. This may not mean much in consumer desktop, but it is huge in commercial which is where AMD is trying to go right now.

Credit AMD's management with a brilliant takedown of Intel's moat over the last few years. From now on, the market is wide open and the best products win. And by the way ... best doesn't mean highest performing. It means most desired by the market.

3. AMD is taking the lead in fabrication capability. AMD's ability to roll out competitve products at the 90nm node shows you that AMD is right there with Intel in fab capability. Even some of the most hard core pro-Intel folks are impressed by what AMD is doing there.

You may say ... well why did 65nm take so long? The reason it took so long is that SOI was immature, and AMD blazed the trail there. There was a lot of hard work to be done there and AMD is making it happen. Later this year, you will see just how good AMD's 65nm SOI is. When that happens ... compare AMD's technology with other SOI based fab houses (e.g. IBM and freescale) see who's out in front. Compare SOI with Intel's bulk silicon approach. It will perform better and will be cheaper end-to-end.

Any way you slice it, AMD is doing in process technology what they were doing in microarchitecture 4 years ago - taking the lead. By mid 2008, AMD will be far ahead due to the fundamental advantages in SOI at smaller nodes.


HOW ABOUT MICROARCHITECTURE?

In servers and laptops AMD is now clearly behind Intel. In laptops this is nothing new. The good news is that AMD has recognized exactly what the problem was: going forward, integrated automated electronic power management is necessary to compete. That may seem obvious to you, but companies like Freescale still don't get it. Improving power management is AMD's new laptop design team's mission. Based on past experience, expect them to create a superior product.

In desktops well ... tip your hat to Intel. They created what looks to be a great desktop product based on their excellent Pentium-M chips.

The good news for AMD is that Intel controlling the top end of a segment is not death as it used to be (see hang your hat on #2 above). AMD can now make a living as a value product without fear of being locked out by (possibly illegal) Intel marketing tactics.

DID AMD'S LEADERSHIP MAKE A MISTAKE BECAUSE OF THEIR APPARENT NON-RESPONSE TO CORE 2?

The jury is still out there. This is not a normal competitive situation. AMD is looking at a possible protracted price war. They are not going to give us their playbook. The only way to judge this will be to watch Gross Margins and earnings for Intel and AMD over the next year. At the end you'll see which team was better.

Personally, I have been very impressed by AMD's management over the last few years. I will give them the benefit of the doubt until they prove me wrong. We all have our opinions of what they are trying to do, but no one has enough visibility to say for sure. That is by design.

THAT SAID, SHOULD I BUY SELL OR HOLD?
The expectation is that there won't be great growth for the next few quarters for a variety of reasons. AMD will do well in servers but everything else is a question mark. If AMD can make major inroads in commercial, they will see substantial growth. They need Dell for that.

If commercial growth happens, AMD will trade steadily (albeit slowly) higher until Quad Cores and/or K8L comes out. At that time, AMD will be ahead in all aspects. Expect AMD to regain a ton of growth at Intel's expense.

Until then, I predict AMD will continue to have solid earnings and solid Gross Margins. Really GMs are the thing to watch. I predict Intel won't see the 50s again, and AMD will continue to be in the 50s going forward.

So sell if you must in the short term. Worst case you'll see sideways trading. Best case you'll see slow ramp up. But if you get out, keep a close eye on the news. Sooner or later AMD will prove that they are a reliable money maker with great growth prospects. When that starts to happen, get back in.

Anonymous said...

"AMD's ability to roll out competitve products at the 90nm node shows you that AMD is right there with Intel in fab capability"

Actually it means they had a superior chip design.

"The reason it took so long is that SOI was immature, and AMD blazed the trail there."

Actually IBM blazed the trail there - AMD paid IBM for the technology and before you say "Cell yields" that is not due to SOI.

"Any way you slice it, AMD is doing in process technology what they were doing in microarchitecture 4 years ago - taking the lead."

As measured by what Si process benchmark? If they are takng the lead why do they continue to purchase/license IBM technology for future technology nodes? I keep hearing all the nice buzzwords like "SOI", "dual stress liner", etc. but the performance data comparison to Intel's process doesn't support this statement.

"Compare SOI with Intel's bulk silicon approach. It will perform better and will be cheaper end-to-end."

There is absolutely no published data that supports that statement. If you have some please post it and I will stand corrected.

howling2929 said...

Glad you finally saw some of these aspects Chicagrafo. ;-)

I am now in Kuwait, with no money, living of "the kindness of strangers". When I get back home, I'll post something longer the title will be: "The coin has three sides".

enumae said...

"Personally, I have been very impressed by AMD's management over the last few years."

I am new to this blog, but what has AMD had to manage?

The only competition was Netburst, which they killed, and all it would seem they are doing now is sueing Intel, and waiting to go to 65nm.

I am a little worried at the fact that they have not released any new information in regards to a counter to C2D, or 65nm process.

I also thought I read IBM develops their SOI process, and the issue with "Cell" processors is a sign of more delays for AMD's 65nm.

"I simply don't know how Intel can walk out 2007 in one piece."

I think only time will tell, but by mid 2007 well have a very good idea of whats to come.

george said...

Conroe could beat amd if they just stole CCht from hypertransport.org just plop it in to conroe and you just killed AMD, but they are to proud to do that, AMD owns the low end conroes and Intel's CONROE EE is just a hare ahed of FX62 and X2 5000 and 4x4 will just drag Conroe Thrue the streats, then K8L/K9 will just kill CONROE with an enhanced K8 core.