And yet Intel's stock rose on its earnings, while AMD is currently down 11% from last night's close. The rationale for that seems twofold: Gross margins shrunk to about 51% this quarter, telling the market that the ongoing price war is hurting the company's results, and there is no immediate answer to Intel's recently released performance kings.
I call that superficial thinking and, ultimately, baloney. Today's AMD sellers clearly didn't pay attention to the earnings conference call.
There's gold in them thar hills!
And I don't just mean revenue and profits -- that call was full of vital information you can't get anywhere else. For example, president and COO Dirk Meyer explained that two percentage points of that gross margin reduction came from unexpectedly heavy demand for Turion notebook chips, which forced the company to rejiggle its manufacturing schedule and lose some expected efficiencies. Together with Apple's
Another chunk of the margin pain came from internal process changes. CEO Hector Ruiz said the company had "some transitional hurdles to overcome" in the quarter, including a new chip revision and on-die support for the DDR2 memory technology. These are necessary changes, but not painless.
And while we're on the subject of margins, AMD is installing more 300-mm wafer facilities to replace the old 200-mm tools, which should increase output and lower manufacturing costs significantly. In addition, the move from 90-nm to 65-nm technology is underway, with the first 65-nm products shipping this quarter, both from its own factories and from manufacturing partner Chartered Semiconductor. Smaller chip traces mean more chips per wafer -- again increasing manufacturing efficiencies -- as well as cooler, lower-power operation. These attributes are proving more attractive than raw processing power these days, especially to corporate customers who need to power and cool data centers that house thousands of processors.
But wait -- there's more!
Dirk listed major corporate system initiatives from heavyweights like Dell
And none of this even accounts for the innovative Torrenza platform, which promises computing capabilities heretofore unheard of, with plenty of incentive for third-party tech giants to support AMD's products. Dell, HP, and IBM all support Torrenza, along with other majors like Sun Microsystems, Cray, and Fujitsu Siemens.
Mr. Ruiz concluded the call by recognizing that "there will be some short-term shareholders who are going to experience some concern and agony over a quarter or two where things don't go perfect." But its system-builder partners, who arguably know better than anybody where the processor market is heading, continue to sign up for long-term deals, and AMD is managed with a long-term roadmap in mind. I agree with that mind-set, and today's price drop is more of a buying opportunity than a bad omen.
Intel and Dell are Inside Value picks. To see why Fools like deep values, try a30-day free trial of Philip Durell's bargain-hunting service. Dell is also a Stock Advisor selection.
Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure is the ultimate long-term vantage point.