RF Micro Devices (Nasdaq: RFMD) and Advanced Micro Devices (NYSE: AMD) are very different beasts when you look beyond the very similar company names. AMD is the larger and more well-known company while RF Micro mostly works out of the public spotlight with smaller and cheaper chips that perform very specific tasks in mobile devices and consumer electronics.
But which brand of micro devices make for the better investment opportunity today? Let's find out.
Round 1: Balance sheet
For those who are used to watching AMD swimming for its life just to keep the proverbial nose above water, this race is closer than you might expect. AMD has $1.9 billion of cash equivalents on hand and only $2.4 billion in long-term debt. 26% more debt than cash is hardly ideal, but way better than a year ago, when AMD's debt was twice as large as the cash pile. RF Micro's $281 million of cash balances out $290 million in debt, and the smaller company can boast a much stronger Altman Z score. Advantage: RF Micro, but not by a landslide.
Round 2: Operations
Under CEO Dirk Meyer, AMD is an increasingly tight operating machine. Margins are on the rise across the board while RF Micro's are stalling, AMD churns out more inventory turns per quarter than RF Micro does, and the cash conversion cycle points in the same direction. These are the tangible signs of a management team that knows what it's doing, even though Meyer took the wheel of a badly floundering ship from his predecessor, Hector Ruiz. Advantage: AMD.
Round 3: Long-term safety
RF Micro works in a highly commoditized market where the competition includes top-notch firms such as Microchip Technology (Nasdaq: MCHP) and Skyworks Solutions (Nasdaq: SWKS). But nearly half of the company's sales come from Nokia (NYSE: NOK), whose fortunes are slipping lately.
AMD's competition is no less cutthroat thanks to the presence of Intel (Nasdaq: INTC) and NVIDIA (Nasdaq: NVDA), but AMD doesn't live or die by a single customer the way RF Micro does. If you had asked me last year when AMD's balance sheet looked a lot less stable, this round would have gone the other way -- but thanks to a wider customer base and a larger revenue stream, AMD is much less sensitive to isolated market swings, so I gotta give this round to AMD.
Round 4: Short-term sex appeal
AMD is on the verge of unleashing its long-awaited Fusion architecture on the world and turning the processor game on its head. RF Micro doesn't have that kind of revolutionary product in the wings, but the company does ride on the salty surf of smartphone mania. Don't forget that Nokia is the worldwide smartphone leader, though it's a non-entity in the North American market. This comes down to a judgment call, and in my view AMD holds the stronger short-term hand, mainly due to Nokia's weakness.
Round 5: CAPS rating
This round is as cut and dried as can be: RF Micro Devices garners a four-star rating out of five with a tremendous 94% approval rating from your fellow investors. AMD's star count stops at two, with a much lower 81% thumbs-up ratio.
Recap:
|
Round |
AMD |
RF Micro |
|---|---|---|
|
Balance sheet |
X | |
|
Operations |
X | |
|
Long-term safety |
X | |
|
Short-term sex appeal |
X | |
|
CAPS rating |
X |
There you have it: AMD walks away with the trophy because it's a better-run company these days with stronger business opportunities in both the long and short terms. Maybe it's time to click your way over to CAPS and correct what looks like an unfair outcome in the CAPS round. I've been doing my part for quite a while, and AMD has been a market-crushing helper on my rise to all-star status.
