Wow! Advanced Micro Devices (NYSE: AMD ) and its shareholders have had a rough ride over the past year. The latest disappointment came Monday, when CEO Hector Ruiz announced that revenue will come in short of the $1.6 billion to $1.7 billion that he had forecast for the quarter. Somewhat predictably, this caused a few people to head for the exits, and the stock dropped below $14, although it has recovered somewhat today.
Is there any reason for optimism, or is AMD going the way of the dodo? Participants in The Motley Fool's new CAPS stock-rating service don't seem to have much optimism. On a scale from one to five, the stock receives just two stars. In comparison, Intel (Nasdaq: INTC ) receives a three-star rating.
So what might the skeptics be worried about?
Let's start with Intel. The world's largest semiconductor company has towering financial strength with $10 billion in cash, which easily dwarfs its $2 billion debt load. AMD, on the other hand, took on a lot of debt to complete the ATI acquisition. Its debt load stands at $3.6 billion, which is a lot larger than its $1.5 billion in cash. Intel is one of the few companies in the world that will certainly be able to afford the steep investments in manufacturing required to stay on the leading edge of semiconductor fabrication. AMD's ability to continue investing down the road is a bit more uncertain, although it shouldn't have a big problem this year.
The ATI acquisition may also be a point of worry for some. I believe it was a good strategic move for AMD, because semiconductor manufacturers have to continue to integrate additional functionality into their chips in order to remain competitive. This is especially important in order for AMD to be able to penetrate the market for low-cost computers, which will likely provide a big part of growth in the future. Despite the long-term positives of the ATI acquisition, it won't be too surprising if it takes awhile to get the two operations running smoothly together.
One more concern I have is that the big computer manufacturers like Hewlett-Packard (NYSE: HPQ ) and Dell (Nasdaq: DELL ) have worked with Intel for years. They have certainly developed some good personal relationships, and have become comfortable with Intel's ability to supply them with parts of sufficient quality and in sufficient quantities. AMD is more like the new kid on the block, and the relationships likely are not as solid yet.
Despite these potential negatives, there is certainly a bull case for AMD. I don't expect it to fade away into oblivion, nor do I expect it to repeat its experience in the '90s, when it played the role of perennial also-ran. However, I don't expect Intel to be caught with its pants down again, either. What I'm driving at here is that I believe AMD is a good investment at the right price -- and the current price of around $14 may prove to be it. If it weren't for the Fool's trading rules, I would probably buy shares at the current price, then plan to make a second buy if the price drops substantially at some point during the year. But as always, you should make up your own mind.
Advance with further Foolishness:
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Fool contributor Dan Bloom owns shares of Intel. The Fool has a spiffy disclosure policy.
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