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AMD Shanghais the Server Market

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Look out, Intel (Nasdaq: INTC  ) ! AMD (NYSE: AMD  ) is back in action. The upstart chipmaker's much-vaunted Shanghai chip hit the street this week, months ahead of schedule. The Intel-AMD chip war has been running pretty cool lately, but things just heated up again.

The Shanghai models are made on an advanced 45-nanometer manufacturing process, which should make AMD's Foundry spinoff attractive to other semiconductor designers. That technology, developed in concert with IBM (NYSE: IBM  ) , lets chips run faster and cooler than older, bulkier electrical traces. (To put the term "bulky" into perspective, you could fit about 800 lines of 65nm processor design lines side-by-side across an average human hair.)

The Shanghai core does more than merely shrink the chip traces. Both Microsoft (Nasdaq: MSFT  ) and VMware (NYSE: VMW  ) should appreciate new virtualization features, which reduce the time lost when switching the processor's attention from one virtual machine to another. Hardware review site AnandTech says that “when it comes to power, AMD is still leading this space by a significant margin.” That's music to data-center managers' ears.

And like I said, all of this progress worked itself through AMD's design and implementation systems in record time, thanks to great manufacturing yields right off the bat, and what looks like a much tighter management team than the one that botched last year's Barcelona launch.

No product launch happens in a vacuum, especially in this tightly contested processor market. Intel is about to launch its own next-generation chip, with virtualization improvements and power-saving features of its own. And the computer market softened very quickly when the world's financial institutions took a sudden nosedive. AMD is supposed to give us a mid-quarter sales update in early December -- but so was Intel, until it moved that event up to last week.

That said, AMD remains a ridiculously cheap stock, and with its manufacturing division spun off, its balance sheet will look much stronger the next time we see it. The company can focus on great chip design, driving thorns in the sides of Intel and NVIDIA (Nasdaq: NVDA  ) . According to Yahoo! Finance, the average analyst's one-year price target appears to be around $6 per share today, which would be an instant double once the market comes to its senses. I bought my shares at $23, and I see no reason why I shouldn't reap a profit in a few years. This stock is for long-term investors, not short-term gamblers.

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Microsoft and Intel are Motley Fool Inside Value selections. VMware is a Motley Fool Rule Breakers pick, NVIDIA is a Motley Fool Stock Advisor recommendation, and The Fool owns shares and covered calls of Intel. Try any of our Foolish newsletters services free for 30 days.

Fool contributor Anders Bylund owns shares in AMD, but he holds no other position in any of the companies discussed here. You can check out Anders' holdings or a concise bio, if you like. The Motley Fool is investors writing for investors.

Read/Post Comments (3) | Recommend This Article (3)

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  • Report this Comment On November 17, 2008, at 3:41 PM, silverwave wrote:

    AMD has a lead of only 3-4 months until INTC introduces Gainestown... which is expected to pretty much obliterate any and all advantages AMD holds including pure performance and performance per watt.

    AMD did well to introduce Shanghai ahead of schedule, props to it.

    That being said, I wonder how AMD remains confident in the face of INTC's reduced forecast for this quarter. 'Wait until Black Friday'? AMD expects us to believe a single weekend's sales can significantly affect its forecast for the entire quarter?

  • Report this Comment On November 17, 2008, at 11:06 PM, TEBuddy wrote:

    Very bold, but I like it. Its correct.

    AMD will be less hurt by the slow economy, because they have the best graphics company, which will still do well even if people dont buy new computers, because people will upgrade graphics chips.

    They also have better chipsets, better values in desktops and much more value in servers with Shanghai systems, immediately available due to backward compatability to current motherboards already designed to handle the speed of HT3.0 even when using HT1.0.

    People seem to think Intel has some kind of lead on the technology, but Intel still hasnt perfected their 45nm manufacturing, because they rushed to get it. Whereas AMD perfected the foundry libraries and design to get an incredible cpu their first try at 45nm, so they are on the same level with Intel as technology goes, just got their later. And who doesn't understand that AMD works with the best foundries out there to generate the most advanced and reliable libraries for fabrication. I can't believe people don't think they'd be able to be a chip foundry for other companies.

  • Report this Comment On November 18, 2008, at 12:29 AM, silverwave wrote:

    Thank you for your reply. I agree with you somewhat about the graphics chips. But keep in mind that ATi's sales account for only 1 in 6 of AMD's total sales numbers. Ergo, I think we shouldn't overestimate the effect of AMD's graphics business on its bottomline for this quarter. And I don't know how much we should count on "value desktops" either, it is not like INTC is totally absent in that segment.

    To take advantage of HT3, new motherboards *will* be required, there's no chipset in the market as of now which offers HT3 support. Wonder how much that will help, though. Oh well, at least it is good to know that the Shanghais kick Harpertown (and Dunnington!!) in virtualization benchies.

    And finally, don't you think it is too early to comment on AMD's 45nm yields?

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