Thursday, February 08, 2007

Rahul Sood's "BADD" approach to valuation

At his latest post, Rahul explains that there is a method to predict future company performance when their management becomes arrogant to the point of hindering development.

His advice to Wall Street is this:
* Find the event that you believe triggered a “blind arrogant” reaction.
* Study the company, the product, the competition, the media, and the customer feedback.
* Make a decision; usually the answer is blatently obvious.

I did just that intuitively after I read George Ou post about the tech. analysts day last year, the post may be found here and it begins like this:

When I attended AMD technology day last Thursday, senior AMD managers poked fun at Intel’s NetBurst architecture and the fact that Intel will be "going back to their previous generation architecture, and that would be an improvement". Most of the industry analysts in attendance began to laugh in the room and I couldn’t quite figure out what’s so funny and if they would still be laughing next month when Intel’s Core2 architecture is released

I felt that AMD had become arrogant. I brought the link and my comments to the board, and the replies were that Ou is an Intel shill. Well, at least I made the arrangements to buy protective puts unaware of the imminent warning, and even went on to advise, for the first time ever, that AMD was a sell, which was a very sudden change of stance for some friends, it led to a mountain of double-speak accusations; but the bottom line was that I saw development-hindering arrogance syndrome (DHAS).

Today, I see Intel very worried about AMD, nothing of past arrogance. I see AMD scared. And the Interview of the texan Randy Allen showed to me that AMD feels that they are back in the game with K10. That is, K10 is enough to close the gap and continue with normal business (duopoly consolidation), but it will take lots of work because it is not much better than what Intel will be offering, and 45nm is already looming.

I think that they are excellent news for both the long term investors in AMD and Intel that both companies are not acting on arrogance and doing their best, their "BADD" index is rather low. They may not have large profits today, but they are developing the x86 market an intense drive that will overcompensate these lost profits and at the same time encourage innovation, differentiation and leaves more money downstream for OEMs and consumers.

This post appeared almost the same in Investor Village.