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Better Tech Value Play: Intel or AMD?

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Though not even close in size, Intel (NASDAQ: INTC  ) and Advanced Micro Devices (NASDAQ: AMD  ) share a number of attributes. Both chipmakers have made a living supplying PC manufacturers with processors, which is why Intel and AMD have something else in common: Both are trying to climb out of the hole they've dug for themselves the past year.

The problems AMD and Intel share are similar to others in the IT industry; each was too slow in transitioning its respective businesses to suit changes in the market. Mobile computing devices are snapped up as quickly as consumers can get their hands on them, leaving the PC market looking more and more like it's heading for a spot reserved for 8-track tapes and AM-only radios.

Proving yet again a company's share price is more dependent on performing relative to analyst expectations than prior periods, AMD shareholders are enjoying a nice 17% jump in stock price since it announced earnings two days ago. Given the PC market, no one was surprised AMD's results declined almost across the board. The company's earnings, revenues, and operating income were all down compared with last year, and sequentially.

So why the nice bump in AMD's share price? Analysts had expected a loss of $0.21 a share, but instead AMD was only $0.14 a share in the red, handily beating expectations. And total revenues for the quarter came in close to what was expected, as AMD generated $1.16 billion in Q4 revenue. Yes, AMD's revenues were 32% less than 2011, but let's not split hairs.

To be fair, AMD did incur some significant one-time charges related to restructuring, and its inventory "situation" with GlobalFoundaries it announced last month. The alteration in AMD's planned wafer order from GlobalFoundaries was a big part of AMD's decision to write down $90 million in costs this past quarter.

As for 2013, and what it will take to turn AMD around, CEO Rory Read had this to say: "AMD continues to evolve our operating model and diversify our product portfolio with the changing PC environment." Too little, too late?

One look at IBM (NYSE: IBM  ) should be all Intel CEO (for now) Paul Otellini needs to see. When IBM announced earnings recently, and raised expectations going forward, the reason for its nearly 5% pop in stock price was simple: CEO Ginni Rometty's and her predecessor's decision to focus on emerging technologies and markets -- namely, software services and cloud computing. Rather than continue selling hardware in an increasingly software-laden world, IBM changed direction, just as Intel must.

Otellini understands the future of Intel doesn't lie in desktop computers, though it certainly doesn't mind the $34.3 billion in revenues the unit generated in 2012. But you get to be Intel by anticipating market needs, and preparing to dominate them, not settling for stagnancy. Otellini has been slow to make the shift to the cloud and mobile computing solutions, but strides are being made before his May departure.

The bright spot in Intel's Q4 and 2012 earnings announcement was revenues from its Data Center Group unit -- in other words, cloud and enterprise computing-related products. At $10.7 billion in revenues last year, Intel's data center unit grew 6% compared with the prior year, the only business unit to show revenue growth.

Another opportunity for both Intel and AMD, lies in the chips used for smartphones, tablets, and a plethora of other mobile computing alternatives. Recognizing the need to aggressively go after this market is what made Intel's unveiling of its newest Atom processor at the Consumer Electronics Show such a positive. Everyone's heard of the high-end iPhone, Galaxy S, and Nexus smartphones, U.S. consumers are inundated with them.

Intel's new processor isn't designed for the domestic, high-price market. It has better plans. The new Atom processor platform named "Lexington" targets what research firm IHS predicts will easily be the fastest-growing segment of smartphone users over the next three to four years -- low-cost phones in emerging markets. IHS expects 559 million low-end smartphones will be shipped in 2016, up from just 206 million units this past year.

OK, so now what?
Whether you're in the AMD or Intel camp, both share prices are down significantly the past year, 57% and nearly 22%, respectively. For value investors, Intel's and AMD's share-price declines are positives, assuming there's a strategic plan in place to turn things around, and the financial wherewithal to make it happen.

In spite of a difficult environment, Intel continues to crank out cash from operations at alarming rates, and you can be certain that with $18 billion in short-term cash on the balance sheet, its stellar 4.3% dividend yield isn't going anywhere. But more than the financials, which clearly favor Intel, the bottom line is answering the question: Which of the two, Intel or AMD, has the better chance of entering and growing market share in the cloud, enterprise, and mobile computing spaces?

That's right: Intel.

When it comes to dominating markets, it doesn't get much better than Intel's position in the PC microprocessor arena. However, Intel now finds itself in a precarious situation long term if it doesn't find new avenues for growth. In this premium research report on Intel, our analyst runs through all of the key topics investors should understand about the chip giant. Better yet, you'll continue to receive updates for an entire year. Click here now to learn more.

Read/Post Comments (7) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 26, 2013, at 2:26 AM, TEBuddy wrote:

    So, I am not sure this article actually shows any justification why Intel is poised to grow more in data centers? This article has no facts but finincial ones. How do you make a call like that based solely on revenue? This is why analysts or journalists are wrong so many times. Both companies have already entered these markets in significant ways. What do you recall of the Intel Netbook? They were early to market and did well, then it just dried up real quick because they couldnt really make very good low power processors and make money off of them. So they left their crappy Atom cpus out there on old tech and they performed poorly. Meanwhile AMD grew a large share of this netbook, low power notebook market, as one of their most successful products. And AMD makes some of the most efficient data centers, for cloud computing. 2013 will probably go Intel's way in data centers, 2014 AMD is likely to gain share. If AMD executes as shown at CES, they may just steal a significant part of the tablet market, and most of the low power laptop market, while seceeding any phones.

  • Report this Comment On January 26, 2013, at 3:03 AM, irishinoregon wrote:

    How many more articles is motley fool gonna keep writing bashing AMD and praising Intel. Over and over. I remember not long ago whey Motley Fool came out bashing Sprint over and over and look what happened to Sprints Stock. It kept taking off up up and away. Good lord. Amd has done one thing Intel hasn't done. Go after the gaming market. Every new Xbox and Ps3 will have Amd chips in them. You guys also failed to mention they teamed up with Vizio and Arm. It's a lot easier to trim off the fat of a small chip company like Amd than a big behemith company that comes out and says their gonna spend tens of billions this year. I'd much rather buy a stock under 3$ than go and spend $20 on Intel when their next earnings report is gonna be much worse. Intel is way to bloated and way to behind. Amd is way ahead in their turnaround as well. $20 for a company who says their gonna billions and billions this year. No way. I'd much rather take my chances with Amd. And I already have.

  • Report this Comment On January 26, 2013, at 3:03 AM, TreyAnas wrote:

    Without getting into unnecessary technical or financial detail ... buying AMD stock is not investing. I've been watching them closely for 30 years. The company hasn't consistently made money in decades and has destroyed an enormous amount of shareholder wealth. Though they have many good engineers and some decent products, and they've fought a valiant fight, they don't make money for themselves or anyone else. Pray for a miraculous turn of events, but don't call it investing.

    Historically, Intel has grown when there has been worldwide business investment. And they've consistently made a lot of money. Admittedly, its investors haven't been rewarded much since the internet bubble burst, but Intel is a financially strong company, with a great stable of products. INTC may not be the best investment choice, but at least it is one.

  • Report this Comment On January 27, 2013, at 1:29 PM, trestranpryat wrote:

    Yet ANOTHER article from THIS particular website that ALWAYS selects Intel over AMD. I am starting to think Intel pays you for this. I have stocks with neither company so I could care less, but it is very suspicious to see this over and over again, even after everyone "in the know" on technology see's AMDs stocks rising.

  • Report this Comment On January 27, 2013, at 1:49 PM, trestranpryat wrote:


    I do agree with you and I believe Intel has done a great job at marketing its products. It could be very possible that the "miraculous turn of events" has to do with AMDs new plans. Other companies have already filled in the gaps these two are trying to fill but they are both in need of money and it is showing.

  • Report this Comment On January 29, 2013, at 6:54 PM, FM5 wrote:

    Does the Fool have this one wrong like thay did about Sirius radio, big companies find it hard to change with the big shot looking out the top window, AMD may change faster then you think

    theres more up side to AMD, as well

  • Report this Comment On January 30, 2013, at 10:18 AM, VincilRay wrote:

    Any long term tech value either of these two companies have is certainly not in X86 for client computing. Microsoft can't breath in the cloud.

    Wiindows 8 Prison Blues

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