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Advanced Micro Devices
AMD vs. INTC Stock, Again

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By BlackMagicGuy
June 6, 2001

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All,

This is a sidestep from the "AMD in the larger market" discussion.

Once again, we're like a group of old farts scratching our chins and talking about how this just ain't right (no offense to any other old farts out there who scratch their chins ;D ).

Rarely is any stock "really priced at what it's worth."

In January who here wouldn't have been doing backflips to have AMD at $28-$34 in only 6 months. Anyone else here still have AMD from about 5 years ago when it was $11 (pre-split)? Is 400% over 5 years a good enough return? OK, how about 100% in 6 months?

For some crazy reason, it seems as though folks here aren't happy unless AMD rises $1 per day for the next 2-3 months. Hey, bumps with a generally rising slope is about as good as it gets.

And, haven't people noticed... we are on the verge of a recession? Yes, the R word. AMD's at 20x forward PE, 15x backward. Historically, that's about right for a company with decent growth. It would take a parting of the Red Sea to expect AMD to grow earnings to $5 this year and have a PE of 20 to give a stock value of $100. The overall markets would have to go nuts to have a rise like that, and believe me I'd be the first one selling if it did.

AMD just needs to keep performing well. Keep on par or one step ahead of Intel in performance, grow slowly into new markets, keep edging up on ASPs, drive technologies, plan new fabs, design good next-generation CPUs, keep flash memory moving, keep and grow more good employees (as opposed to trying to downsize), and keep bringing in innovative partners. These are all VERY important, and can anyone give AMD anything less than a B+ on any of these?

Intel is another story. AMD can grow and do well regardless of what Intel does. However, it doesn't hurt for Intel to keep making really dumb mistakes in rapid fire. Intel has a backward PE of 15-20, forward PE of 50 (ouch), but 2002's PE estimates are still high at 35. I've talked a good deal about all of this in the past so I won't delve too far into again. Suffice it to say that I think Intel will face continued ASP pressure in almost all markets and gaining marketshare will be tough if not impossible.

Back to AMD. Announcements/rumors/pictures for the mobile A4 have included Compaq, HP, Sony, NEC, and Fujitsu. Yeah, CPQ is the only guy shipping so far, but I expect the others over the next couple of months to come forward. No, AMD won't have 50% of the mobile market in Q3. My guess is that it'll be 2-5% in Q2, 5-10% in Q3, 15-40% by Q4. Of course, this all is subject to major factors like Tualatin and its ramp), .13 Athlons, pricing, yields, etc. However, can anyone complain about a ramp like this going against Intel?

Now a thought about 2P servers/workstations. Take the mobile numbers and divide by 5, with zero volume for Q2. Getting into the corporate market will be difficult, but I believe that AMD will be able to drive that wedge. Again, as I've said in the past, gaining marketshare there won't be nearly as important as what it does to Intel's margins in those markets. Crush Intel's ASPs, and you crush Intel.

Oh, and one subject that's been quiet for a couple of months is the outsourcing of production. Whenever that comes online, I think the rumor was that 20% of our sales were in the cards. Add a nice 1.5mil/qtr of about $150 ASP parts (I'll assume .13 micron, so they'll be high-end parts, either workstation or mobile???). This adds 20% to the overall revenue numbers. Of course, it'll probably take a couple of quarters from the first parts sold until we get to the 1.5mil/qtr volumes. However, it will be a very nice bonus when/if it happens.

Anyway, my rambling $0.02 worth. I'm still very happy with AMD's overall performance.

Black Magic