Business Week on INTC vs. AMD

[HenryTo]

Let's see if Intel can pull another rabbit out of the hat:

http://yahoo.businessweek.com/magazine/content/04_48/b3910050_mz011.htm

Historically, Intel has nearly always been able to deliver when they're backed into a corner - but whatever the case may be, this intense competition between Intel and AMD can only be good for businesses and consumers (unless you were an Intel investor, of course).

[HenryTo]

Looks like AMD may be officially "toast" here.

http://www.anandtech.com/IT/showdoc.aspx?i=2793&p=1

Not only does Woodcrest outperform AMD Opteron in most cases, it also does it with less power consumption. And finally, it looks like that INTC still has quad-core up its sleeves before AMD even has an answer to Woodcrest.

[HenryTo]

Intel officially declares war on AMD:

http://www.fool.com/News/mft/2006/mft06070719.htm?ref=foolwatch

[HenryTo]

Rumors of a price war have been in place since June 2nd - when the Register first started circulating what was thought to be a rumor at that time. This probably made up a significant chunk of the weakness in INTC recently. And it now looks like that Intel will eat AMD's lunch later this year in the server market:

http://www.anandtech.com/IT/showdoc.aspx?i=2772&p=11
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Intel says set to cut prices more quickly
Thu Jun 8, 2006 6:11 PM ET

By Scott Hillis

SAN FRANCISCO, June 8 (Reuters) - Top microprocessor maker Intel Corp. <INTC.O> can cut prices on older chips more quickly than in the past thanks to its aggressive adoption of new manufacturing technologies, a spokesman said on Thursday.

The maker of Pentium chips has trimmed prices in recent months as it moves to clear inventories and halt market share gains by rival Advanced Micro Devices Inc. <AMD.N>, and many analysts say they expect steeper cuts in the coming months.

"We have a more aggressive product and manufacturing ramp, so those older Pentium products will move down faster," Intel spokesman Chuck Mulloy said. "It's not like we're cutting prices for the sake of cutting prices."

Intel, which makes about 80 percent of the processors found in personal computers, is at the leading edge of using the latest manufacturing techniques to etch circuits as small as 65 nanometers, a width that is less than 300 atoms across and more than a quarter thinner than the previous generation.

The smaller chips are not only more energy efficient and powerful, but also more profitable for semiconductor companies because more can be cut from a single slice of silicon.

Intel is trying to clear the path for its new line of processors based on a fresh design called "Core" that analysts say helps close the performance and power efficiency gap with AMD's chips.

Core is pushing the Pentium line, its previous flagship products, to the bottom of the company's product portfolio.

"We're going to be able to ramp so quickly with the new (factories)," Mulloy said. "You'll see more of the 65-nanometer Core architecture products at the end of the year than you would see in a historical pattern."

CORE VALUED

Intel will launch its Core chip for server computers that run networks this month, followed by a new desktop processor in July and a new laptop product in August, Mulloy said.

"We're going to gain market share with the new products. That's where we're going to be focused on the market share," he said.

Mulloy declined to comment on specific price cuts, but Citigroup analyst Glen Yeung said in a note on Wednesday that, based on talks with Intel customers, Pentium prices could fall by between 8 percent and 61 percent by late July.

Concern over a price war led Yeung to cut 2006 profit estimates for Intel by 10 percent, to 77 cents a share, and for AMD by 11 percent, to $1.14 per share.

JoAnne Feeney, vice president of research at Punk, Ziegel & Co. who has a "buy" rating on AMD, nonetheless said the smaller company would struggle against Intel's price cuts.

"The one concern I have is that Intel is in pretty dire straights in terms of getting rid of their old inventory and old chips," Feeney said. "What we're seeing now is a lot of people sitting around waiting to see what the next prices will look like, and that's hurting AMD."

Jim McGregor, a semiconductor analyst with research firm In-Stat, said Intel's plans to start 65-nanometer production at a fourth factory this year could lead to further mark-downs.

"If the economy goes, the market goes and demand stalls, it could be a big issue," McGregor said. "I think Intel's already trying to get aggressive on the pricing." (Additional reporting by Duncan Martell in San Francisco)

[HenryTo]

Don’t buy any desktops or laptops until later this summer. Desktop processors will be "refreshed" and price cuts will happen on July 23:

http://www.dailytech.com/article.aspx?newsid=2547

Notebook processors are expected to be “refreshed” this August:

http://www.dailytech.com/article.aspx?newsid=2546

[HenryTo]

Some solid evidence suggesting that INTC will outperform AMD in the server market very soon:

http://www.dailytech.com/article.aspx?newsid=2487

[HenryTo]

Morningstar on Dell finally using AMD processors. Not too big of a hit to INTC - and I agree. That is why I picked up some INTC on Friday morning at $18.03 and hoping to ride this "bounce" at least into next week. Moreover, there is reason to believe that INTC's microprocessors will finally leapfrog AMD's by the end of this year.

http://www.anandtech.com/cpuchipsets/showdoc.aspx?i=2748&p=6

http://www.realworldtech.com/page.cfm?ArticleID=RWT030906143144&p=11
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Dell said Thursday that it will include Advanced Micro Devices' AMD Opteron server chips in its high-end server line by year-end. Although this is a shot in the arm for the chipmaker, we are maintaining our fair value estimates for AMD and Intel INTC. Dell had been an Intel-only shop, but the market has demonstrated a strong preference for the Opteron chips, as witnessed by the growth in AMD's server chip market share. We believe Dell is including the AMD chip to capture sales it may not get otherwise.

We think this could open up some longer-term opportunities for AMD, but we're not convinced that it will amount to much in the short run. As of the fourth quarter, Dell had 20% of the server market; by including AMD in its server lineup, it expands AMD's addressable market by 25%. In addition, we think this increases the possibility that Dell might include AMD's notebook and desktop chips in its lineup. However, we believe it may be difficult for AMD to realize the full extent of this opportunity. For now, AMD is only in Dell's servers. In addition, Intel is coming out with chips that narrow the performance gap with AMD. Should Intel decide to really slash prices on its servers, the rationale for customers to choose AMD could disappear altogether.

[HenryTo]

AMD roadmap updated:

http://www.dailytech.com/article.aspx?newsid=1702

Also, desktop sales are still growing despite the popularity of laptops nowadays:

http://www.dailytech.com/article.aspx?newsid=1717

[rffrydr]

....except for one problem, it seems to me: computers already do everything WE want them to do.

What's the killer app?

[HenryTo]

There's a real chance that Intel's top-end processors will start outperforming AMD's later this year - given that Conroe is scheduled to be released by the third quarter of this year:

http://www.anandtech.com/tradeshows/showdoc.aspx?i=2716

65nm and dual core isn't too exciting, IMHO. But 45nm and quad core sure does - and coupled with the release of MS Vista later this year, we should experience a surge in both hardware and software upgrades come 2007 and 2008.

At this point, this author is not buying INTC just yet - but am definitely watching.

[HenryTo]

A "geek debate" on INTC vs. AMD. Warning: Some of the posts may be offensive or seem amateurish to some readers:

http://www.dailytech.com/article.aspx?newsid=550

[HenryTo]

By the way, I had neglected to disclose that I had closed out our Intel long position on Thursday afternoon (leaving on the short directional play on AMD). When it comes to what we do in our own portfolios, we actually do eat our own cooking.

Take care,

Henry

[HenryTo]

Thanks, cl001 - I'll check it out going forward.

I would say that investing in either INTC or AMD just for their microprocessor businesses is risky at this stage. I don't think the IBM analogy applies here. IBM was nearly buried because it stuck to their old way of doing things as well as their old technologies. My guess is that INTC will only be buried by external forces - and not by a combination of IBM and AMD.

Andy "Only the paranoid survives" Grove took INTC to a whole new level by shedding its memory chip business (which the Japanese and Taiwanese were outcompeting them) and focusing on developing microprocessors - which it did extremely well by recruiting the best talent and riding on the wave of the PC boom. Today, INTC still has an advantage primarily because of its brand name, intellectual property, and its high amount of capital - although as cl001 said, AMD is currently beating the heck out of Intel on the desktop market. The key for AMD here is to make a smooth transition to the 65nm process (I think AMD priced itself out of the market by releasing its newest processor with a price tag of over $1,000).

Going forward, INTC will only stumble if they do one of two things:

1) Continue to focus on the microprocessor business and fail to find the next wave to ride on.

2) Consistent failure to find the next wave of new techologies that INTC can leverage with their talent, brand name, and intellectual property. At this point, it seems like Paul Otellini is going in the right direction. Go onto any computer hardware sites like tomshardware.com and you will find that they are essentially proclaiming the end of Intel's reign - which is partially true to some extent - as long as you only focus on speed alone in the desktop market. That's because geeks and engineers only focus on speed - which also used to be the culture at Intel but that is no longer the case. What they have ignored is that under Otellini, INTC added 20,000 jobs in 2005 - and many of these new employees are no longer engineers. In fact, Otellini is the first non-engineer to run the company. INTC is also set to release a record number of new products in 2006. The new partnership with Apple will continue to add brand value to Intel.

At this point, AMD is still only focusing on microprocessors - sure, they have a lot of room to grow simply because they can take market share away from INTC. But at the end of the day, as long as INTC can keep up with AMD on speed alone, I think INTC will be a better investment than AMD in the long-run. I think the risk for Intel at this stage is NOT to make the leap from microprocessors - since the business of microprocessors is no longer showing any where as much growth as it used to.

[cl001]

Henry, you are brave!
Well, in the short term AMD is probably overbought while INTC is oversold. But in the long run it is hard to say. AMD is ahead of INTC in both desktop and server CPU technology. INTC is only leading in laptop and chip set. AMD will attach INTC in the laptop base this year. Remember how MS and INTC almost drove IBM into bankruptcy? The same thing may happen to INTC. The only thing helps INTC is, say you guys correctly predicted, AMD doesn't have as many fabs as INTC, it can't produce enough processors. This may change once AMD moves some production to IBM, for example.
Well, I accumulated significant shares of arsd.pk lately. It is a chemical company that rides the exploding material price. Its main business is chemical plants in TX, though they have mines in Saudi Arabia that are not in production. You may be able to check it since it is not far from you, Henry. It earned 26c last quarter vs stock price of 1.5, very cheap. I was told that they were planning to be listed on OTC in Q1 of this year. Here is some DD,
http://sec.freeedgar.com/displayText.asp?ID=4013513

[HenryTo]

Good call, cl001! Care to give us more predictions going forward?

Went long INTC/went short AMD this morning. Let's see how that goes...

[cl001]

INTC vs AMD? I had the last laugh!
End of discussions?