Even though there is a shortage in the semiconductor industry, AMD (AMD -3.09%) is still in a strong position for at least the next few years. In this video clip from the "Semiconductor Revolution" show on Motley Fool Live, recorded on May 19, Fool.com contributor Jose Najarro looks at how AMD is able to successfully manage the cyclical nature of its business.
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Jose Najarro: The reason I'm not too concerned is one, I do believe sometimes the semiconductor shortage is helping the semiconductor industry up a bit. Normally, what you would have here in the semiconductor industry is you have companies sometimes overorder on a lot of products, and that kind of causes a little bit of cyclicality, they will overorder a year or two in advance, and then by the third year they're like, OK, maybe we overordered a little too much, so we're not going to order that much this year.
Because of the shortage, I do believe overordering is not possible at the moment by a lot of the consumers, so I think it's helping somehow and this cyclicality that we normally see in the overall market. I also do believe in the short-term of things, these shortages can give a little bit of boost in margins. I mean if there's a shortage, companies will have a bit of pricing power, maybe later down the line when, if the shortage eases up a bit, maybe we might start to see some compression on margins, but right now, companies like AMD, if the datacenters, I'm pretty sure they're able to have a little more strength in the pricing power.
At the end of the day, I really wouldn't imagine so much, I mean, AMD and all these players, all these orders are long-term orders, so AMD and all these big players already know how much inventory they are going to have. At the moment, AMD still in their most recent earnings mentioned they expect a strong year in 2022 and I'm pretty sure they're also going to show this strength in 2023.