AMD
 

Alright, let me preface this by saying that I am brand new into this type of thing. I am trying out my hand at a little stock research, so I picked the fairly active/volatile stock AMD.

AMD bought ATI Tech in 2006 and at first it was receieved well by wall street and the price soared. However in 2007, AMD has been murdered by INTEL. A big reason for this is a rather controversial issue which involved INTEL handing Dell money (alledgedly) under the table in order to get intel into the computers. The bottom line is that intel has been very scrappy and been doing whatever it takes to get into manufacturers, and AMD is struggling on the marketing side even though its chips are said to outperform Intel's.

Right now there is very suspicious activity on the options spread, there is a gigantic volume of April puts, way higher than normal. Apparently this type of volume either means that a hedge fund is using a scare tactic to persuade people to sell stock, or that there is some sort of impending bad news on the horizon with AMD.

In addition, since AMD aquired ATI, goodwill of over $4b appeared on the balance sheets. This number is likely way too large and is inflating the assets of AMD because of the problems with its merger.

Even though AMD has been getting destroyed in 2007, I think it will get worse. If I was more confident in myself I would short it/buy puts.

So how did I do? I really dont know the lingo and would appreciate any insight into how I should be approaching this kind of thing.

-Jason

Re: AMD
 

Your only real arguments appear to be:

1) Intel is "scrappier"
2) Possible Hedge Fund Scare tactic (can you provide more on this?)
3) Inflated asse base because of good will from the merger (which every other analyst on the planet has seen and is likely priced into the stock
4) Bandwagon argument ("everyone else is shorting so I should too")

What's NOT included (just a few ideas):

1) Nothing about the outlook for the chip industry as a whole
2) No comparison between what is being done to gain/maintain market share by each company (not that there's a precise statement you'll find about this, but a few press releases/statements etc should give you a decent feel)

Questions about your observations on the amount of April puts:

1) Where did you find this information?
2) Why would they choose April puts? Just because it is the nearest contract or because maybe that's when chip makers typically unravel their "latest and greatest" (which I think is the case much of the time)?

Re: AMD
 

didn't intel recently release news about a superduper chip in development? and it's position as providing apple with chips can't be hurting it too much.

i think whatever hurt amd's gone through would've already been priced in already.

Re: AMD
 

I just went on etrade and looked at the option spreads and couldnt figure out why there were so many puts. So then I went on yahoo message board and people there were talking about it, it seems like someone might know something? I got the hedge fund scare thing from speculation on that board.

Re: AMD
 

Do I just assume anything that sticks out in a balance sheet is already worked into a stock price?

Re: AMD
 

[ QUOTE ]
Do I just assume anything that sticks out in a balance sheet is already worked into a stock price?

[/ QUOTE ]

i think a lot of the equity investors live and die by the balance sheets and quarterly earnings

Re: AMD
 

[ QUOTE ]
In addition, since AMD aquired ATI, goodwill of over $4b appeared on the balance sheets. This number is likely way too large

[/ QUOTE ]
Could you give a little more color on why you think this number is too large? Was ATI public when AMD acquired them? If so, what was their market cap and what was the buyout at?

Re: AMD
 

I putzed around with AMD stock a few years ago. Here is what I learned: AMD has been a pretty terrible buy & hold stock if you look at the chart long term. However, it is extremely volatile b/c it is the distant number two to Intel, but now and then takes a temporary technological lead for a few months and the price skyrockets.

So, there is some money that can be made here, but IMO you really have to follow the technology, and that is pretty tough to unless you are in the industry or at least have a background somewhat related to this industry. The reason is that unlike in other industries, the technology lead changes can happen very quickly and are very large in magnitude. As a counter-example you could think of the auto industry where the difference in both quality and production costs of a Chevy vs Toyota is trivial by comparison, and this doesn't change by all that much from year to year.

I think it's really hard to use standard metrics like P/E to follow AMD b/c their profits (when applicable), revenue, etc. are all extremely volatile.

Good luck if you jump in, AMD is a fun ride if you can stomach the swings!

Re: AMD
 

There's one lesson I learn from the Buffett philosophy. People don't want the cheap stuff; people want the real stuff. An example he used is when you're coming home with a box of cheap chocolate, your spouse isn't going to be too happy. However, a box of See's isn't so bad.

If anyone ever give me a laptop or computer, I want an Intel chip in it, not a cheap AMD one. And Intel actually performs better (or who cares if it supposedly does).

For an mp3 player, I want an iPod. I don't care if the Zune/MagicPlayer/Pee3 has more memory, is more power efficient, or whatever other reason it is better than an iPod. I just want an iPod like everyone else, especially when it supposedly make me looks all stylish and stuff at the poker table.

This is another reason why AAPL keeps going up. I want to sell it badly but I can't pull trigger (again) [img]/images/graemlins/frown.gif[/img]

Re: AMD
 

Disclaimer: I work for intel.

I think your conclusion is correct that you shouldn't buy AMD. However I think your reasoning isn't really based on anything substantial.

Your reasoning should follow this line of thought...

Intel and AMD have been at each others throats for the last 6 years since the bursting of the tech bubble. The only product that they sell that impacts the bottom line is the PC processor. Several facts about PC processors are worth mentioning here.
1. The PC processor is the most complex thing that humans have designed and built. Each successive generation requires more resources than the previous ones to increase performance. They aren't really designing these things to go much faster any more. They are just putting more and more "cores" onto each piece of silicon. This method of increasing performance has a limit. Not too many people are going to be able to utilize 32 or 64 cores.
2. The average selling price of these things has been falling for years. Margins on the actual manufacturing of these chips are still high >50%. That means there is still plenty of room for prices to fall further.
3. No new uses for these chips outside of PCs (except maybe game consoles, but no margins there either) are on the horizon. Even the most complex piece of mass produced electronics equipment is fairly specialized and can get by on much less processing power.
4. Growth into new consumer markets (third world) is happening but not at prices or volumes that either of these companies would like. Individuals and businesses simply can get by with older slower cheaper units.
5. The real growth is in internet data centers ala google. Even this growth is not big enough in volume to make up for the competitive price pressures and increasing costs of designing these chips.

Neither of these companies holds much LONG TERM interest for me as an investor. AMD might have a better chance at share price appreciation just because they can grow into intel's market share. Intel has shown it will fight (through pricing) to maintain its market share.

Illustrating these market forces...
INTC is priced about the same as 10 years ago.
AMD is priced about the same as 20 years ago.

In light of this neither looks good for an investment.

As far as shorting and buying puts, I can't really predict short term price movements (who can?) and those aren't really long term plays.

Max

Re: AMD
 

I've never really seemed to understand how AMD/Intel are affected in the short term, but I think I have a much better feel of where both companies will be in the future.

I've always felt that AMD lacked in one area Intel seemed to have such a huge dominance over and that is providing platforms to go with the chips they produce (think chipsets and packages like the Centrino brand). Having "AMD endorsed" platforms could definitely increase AMD's acceptance among major OEM manufacturers and this is already being seen with Dell/HP. An area AMD seemed to have dominated Intel recently in terms of performance/power is in their server markets with their Opteron platforms where typically margins are much higher. The growth in marketshare in this segment has definitely hurt Intel.

In terms of pure performance, this is a period of computing history where I think you'll see the least amount of performance gains *in today's applications* due to the transition to multicore processors. It's basically the equivalent of a hack (can't improve the single core due to heat and other process limitations, so throw in more cores). There's a lot of emphasis on parallel computing that's starting to find it's way down at the undergrad level at major engineering colleges.

In the future, I think AMD and Intel will take very different approaches to tackle the problem of performance and parallelism. Their fundamental architectures are really starting to diverge where AMD is looking into specialized processors connected via HT links and Intel seems to just be throwing more cores at the problem but in an efficient design. I'm not really sure which implementation will succeed, but it should be interesting to see how things pan out in the future.

Re: AMD
 

[ QUOTE ]
Disclaimer: I work for intel.

I think your conclusion is correct that you shouldn't buy AMD. However I think your reasoning isn't really based on anything substantial.

Your reasoning should follow this line of thought...

Intel and AMD have been at each others throats for the last 6 years since the bursting of the tech bubble. The only product that they sell that impacts the bottom line is the PC processor. Several facts about PC processors are worth mentioning here.
1. The PC processor is the most complex thing that humans have designed and built. Each successive generation requires more resources than the previous ones to increase performance. They aren't really designing these things to go much faster any more. They are just putting more and more "cores" onto each piece of silicon. This method of increasing performance has a limit. Not too many people are going to be able to utilize 32 or 64 cores.
2. The average selling price of these things has been falling for years. Margins on the actual manufacturing of these chips are still high >50%. That means there is still plenty of room for prices to fall further.
3. No new uses for these chips outside of PCs (except maybe game consoles, but no margins there either) are on the horizon. Even the most complex piece of mass produced electronics equipment is fairly specialized and can get by on much less processing power.
4. Growth into new consumer markets (third world) is happening but not at prices or volumes that either of these companies would like. Individuals and businesses simply can get by with older slower cheaper units.
5. The real growth is in internet data centers ala google. Even this growth is not big enough in volume to make up for the competitive price pressures and increasing costs of designing these chips.

Neither of these companies holds much LONG TERM interest for me as an investor. AMD might have a better chance at share price appreciation just because they can grow into intel's market share. Intel has shown it will fight (through pricing) to maintain its market share.

Illustrating these market forces...
INTC is priced about the same as 10 years ago.
AMD is priced about the same as 20 years ago.

In light of this neither looks good for an investment.

As far as shorting and buying puts, I can't really predict short term price movements (who can?) and those aren't really long term plays.

Max

[/ QUOTE ]

1. IMO the multicore approach is basically an admittance of an architectural limitation.

2. Remember when processors averaged a lot closer to $1000? Do these margins include R&D costs? I'm not sure what the figures are, but I would assume that R&D is taking up a huge portion.

3. The only applications that seem to be driving performance these days are games, and a majority of the time, the bottleneck is the memory bandwidth in this case.

Re: AMD
 

Max, I own Intel stock, work harder! j/k

Short interest is likely due to Micron posting a loss due to "a tough pricing market for memory chips". Chipmakers are closely tied together so if one big player suffers often the stock price of others will be affected in the short term. However, this is not major news to the industry, Micron and AMD have been dropping for months. Buying put options two weeks before expiration is extremely risky, the time value will kill the price of the options quickly unless the stock drops immediately. AMD was a $40 stock a year ago and is now trading for $13, the opportunity to short it is probably long past.

Re: AMD
 

One of the many analysts covering AMD:

[ QUOTE ]
The bad news is that our detailed analysis of AMD’s cash situation indicates that the company likely can’t get to the end of the September quarter without an equity financing in the $1 billion range. Investors need to remember that AMD’s ability to offer additional debt may be constrained by the need to pay back the company’s existing bridge loan. We’ve factored in the various other sources of funding that AMD plans on accessing, but the numbers still don’t make it in our opinion without external financing.

[/ QUOTE ]

This news has been out for several weeks now. I was looking at AMD when it was trading near 15 w/ rumors of LBO causing a slight pop in the stock price. I guess reality has set in again that AMD doesn't have enough cash to make it through the year. If they don't get cash somehow, they are screwed. As soon as I saw that, I scratched all notions of buying AMD. I'm a long only investor.

I don't know why there's a lot of open interest in the april puts, but the situation overall doesn't look great.

Re: AMD
 

[ QUOTE ]

1. IMO the multicore approach is basically an admittance of an architectural limitation.


[/ QUOTE ]

Your opinion is in the minority and without elaboration on your part, I strongly disagree.

Jason,

Please understand that the Yahoo message boards are almost always populated by people who are full of [censored]. If they told me the sky was blue, I'd go out and check for myself.

J

Re: AMD
 

Max, great post. I was trying to say pretty much the same things you said, but clearly you are much more knowledgeable about the industry.

One quibble:

[ QUOTE ]
2. The average selling price of these things has been falling for years. Margins on the actual manufacturing of these chips are still high >50%. That means there is still plenty of room for prices to fall further.

[/ QUOTE ]

I think the main reason these margins are so high is that the fixed/sunk cost of a new fab is so high. So the high margins are really just the necessary means of paying off the fixed costs.

So, I'm not disagreeing with your conclusion that this is not a great long term investment, but I'm not sure that the margins can fall that much (w/o AMD going bankrupt, for example).

Re: AMD
 

[ QUOTE ]
I want an Intel chip in it, not a cheap AMD one

[/ QUOTE ]

lol

Re: AMD
 

Which of the two companies is going to be the first with the nanotechnology? You know, the processors that use chemical reactions or light or whatever as binary switches?

That's the one to buy.

Re: AMD
 

[ QUOTE ]
[ QUOTE ]

1. IMO the multicore approach is basically an admittance of an architectural limitation.


[/ QUOTE ]

Your opinion is in the minority and without elaboration on your part, I strongly disagree.

Jason,

Please understand that the Yahoo message boards are almost always populated by people who are full of [censored]. If they told me the sky was blue, I'd go out and check for myself.

J

[/ QUOTE ]

The x86 architecture has been around 25+ some years. I don't think there have been significant advancements in the architectural space in x86 for a while. A majority of the improvements have been die shrinks, pipeline/prefetching tweaks, and moving more components onto the die all in the fight against heat and latency. The physical limitations are already starting to show which is why the transition to multicore was so quickly adopted. I guess I should have rephrased my statement to say that the limitation is both architectural and physical.

Just curious, but what's the majority opinion on the reasons for the transition to multicore processors?

QFT on the last part.

Re: AMD
 

Theres only one reason why they went to multicore. Its not a matter of opinion open to debate.

Multicores are there because having two cores provides better performance. Making a single core run fast enough to provide similar performance is too difficult given the heat and power problems.

Multicores were less viable before because the processor size would have been too large and negatively affected yields.

So yes, it is somewhat of an admittance of process (I think this is what he meant instead of x86) limitations.

This doesn't have that much to do with the original topic other than to lend credibility to the fact that the product is becoming increasingly complicated while prices are falling, while growth rate of the marketplace is slowing.

Max

Re: AMD
 

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]

1. IMO the multicore approach is basically an admittance of an architectural limitation.


[/ QUOTE ]

Your opinion is in the minority and without elaboration on your part, I strongly disagree.

Jason,

Please understand that the Yahoo message boards are almost always populated by people who are full of [censored]. If they told me the sky was blue, I'd go out and check for myself.

J

[/ QUOTE ]

The x86 architecture has been around 25+ some years. I don't think there have been significant advancements in the architectural space in x86 for a while. A majority of the improvements have been die shrinks, pipeline/prefetching tweaks, and moving more components onto the die all in the fight against heat and latency. The physical limitations are already starting to show which is why the transition to multicore was so quickly adopted. I guess I should have rephrased my statement to say that the limitation is both architectural and physical.

Just curious, but what's the majority opinion on the reasons for the transition to multicore processors?

QFT on the last part.

[/ QUOTE ]

JJ,

Max largely covered it but I wanted to respond as well.

Regarding arch improvements, 286 -> 386 was pretty damn significant as is x64.

J

Re: AMD
 

[ QUOTE ]
Theres only one reason why they went to multicore. Its not a matter of opinion open to debate.

Multicores are there because having two cores provides better performance. Making a single core run fast enough to provide similar performance is too difficult given the heat and power problems.

Multicores were less viable before because the processor size would have been too large and negatively affected yields.

So yes, it is somewhat of an admittance of process (I think this is what he meant instead of x86) limitations.

This doesn't have that much to do with the original topic other than to lend credibility to the fact that the product is becoming increasingly complicated while prices are falling, while growth rate of the marketplace is slowing.

Max

[/ QUOTE ]

You may be focused on the home user market. On the server and workstation side the multi core systems allow double (or quad) the number of active processes to run nearly as fast. This is huge.

Putting it back on topic, AMD's approach to multi core is technically better than Intel's but Intel was smarter in that they hacked together an inferior quad core to beat AMD to market.

J

Re: AMD
 

I have traded AMD and Intel since 1999, very successfully. In order to trade AMD successfully you have to have to have to understand the technology, both the "whose chip is better" as well as the manufacturing technology.

If you don't stay on top of both of these things, which basically turns into a full-time job in and of itself, then you should not trade AMD.

There are always funny things going on with the stock and options price. It's hard to know what to make of them. In the end, the technology trend wins out.

Re: AMD
 

[ QUOTE ]

You may be focused on the home user market. On the server and workstation side the multi core systems allow double (or quad) the number of active processes to run nearly as fast. This is huge.

Putting it back on topic, AMD's approach to multi core is technically better than Intel's but Intel was smarter in that they hacked together an inferior quad core to beat AMD to market.


[/ QUOTE ]

Sounds like you're thinking of multi-processor not the new multi-core stuff like Cell. But maybe not. For the record, multi-processor is sort of the old way, where you have several large full processors with reorder buffers and their own caches and you hook them together in various ways. AMD had a very cool system for that which was good for servers. Multi-core is the new thing in which you take one processor with only one L2 cache and one memory controller and you stick a ton of simple in-order cores on it (each with its own L1).

I had a dream in which I dreamed this : "Intel has a future multi-core chip for the home PC which is similar to Cell and supposedly very awesome".

However, I just don't see high-end CPU's like that really commanding the huge premiums that they did in the past. I agree with a previous poster who said CPU's are becoming commodities like memory chips which means the profit margins will fall and it will become a tougher and tougher business. I don't like Intel or AMD as a long term buy & hold stock. Also it seems like IBM may become a bigger player in the processor market.

In the short term - the market is really really dumb about technology companies, whenever somebody makes a big announcement the stocks go nuts. So as others have said you can definitely make money playing these things in the short term.

Re: AMD
 

Anyone who's traded AMD must remember the K6 debacle. And pretty much everything else AMD has done which has always been a giant debacle. They keep seeming to have the chance to catch up to Intel and then they blow it somehow.

Re: AMD
 

[ QUOTE ]
Disclaimer: I work for intel.

I think your conclusion is correct that you shouldn't buy AMD. However I think your reasoning isn't really based on anything substantial.

Your reasoning should follow this line of thought...

Max

[/ QUOTE ]

Don't be so pessimistic. I was this pessimistic 8 years ago.

There are plenty of tricks left. And plenty demand for those tricks. Image, 3D, and AI/Learning applications need as much CPU as you can give them. I think the only danger for AMD/Intel is that down the road the technology that makes for the fastest chips will more fall into some other company's expertise.

Re: AMD
 

I am sure you know how much intel's stock has fallen since 8 years ago.

How could you be anything but pessimistic about a company whose only viable product is becoming less and less profitable to make each year?

Re: AMD
 

[ QUOTE ]
[ QUOTE ]

You may be focused on the home user market. On the server and workstation side the multi core systems allow double (or quad) the number of active processes to run nearly as fast. This is huge.

Putting it back on topic, AMD's approach to multi core is technically better than Intel's but Intel was smarter in that they hacked together an inferior quad core to beat AMD to market.


[/ QUOTE ]

Sounds like you're thinking of multi-processor not the new multi-core stuff like Cell. But maybe not.


[/ QUOTE ]

No, I am quite specifically referring to processors with multiple cores. To be precise; Clovertown, Woodcrest, Tulsa et al.

[ QUOTE ]

For the record, multi-processor is sort of the old way, where you have several large full processors with reorder buffers and their own caches and you hook them together in various ways.


[/ QUOTE ]

Old way?

Multi core does not remove the need for multiple processors. It just allows larger numbers of cores without the isssues involved in machines with larger numbers of processors (density, power, heat, cost). An 8 way system now is far cheaper to purchase and maintain than a couple years ago.

[ QUOTE ]

Multi-core is the new thing in which you take one processor with only one L2 cache and one memory controller and you stick a ton of simple in-order cores on it (each with its own L1).


[/ QUOTE ]

This is a simplification and not entirely correct but that is not really relevant and well off topic.

However, to bring it back to point, the details which have been simplified here get towards why AMD is technologically better.

J

Re: AMD
 

[ QUOTE ]
Do I just assume anything that sticks out in a balance sheet is already worked into a stock price?

[/ QUOTE ]

Absolutely not. Both APT models and EMT assume there are traders taking positions to correct incorrect valuations. That doesn't happen instantaneously, even if you believe all that foolish EMT-hand waving.

Secondly, people routinely overlook/underlook at balance sheets for years on end. Enron would be an easy example. Any company guilty of channel-stuffing, it shows up on the balance sheet and other statements before they announce the earnings miss.

I've owned/followed AMD off and on for 15 years. It will break your heart.

Re: AMD
 

[ QUOTE ]


AMD bought ATI Tech in 2006 and at first it was receieved well by wall street and the price soared. However in 2007, AMD has been murdered by INTEL. A big reason for this is a rather controversial issue which involved INTEL handing Dell money (alledgedly) under the table in order to get intel into the computers. The bottom line is that intel has been very scrappy and been doing whatever it takes to get into manufacturers, and AMD is struggling on the marketing side even though its chips are said to outperform Intel's.


[/ QUOTE ]

I think you got a lot of good responses on the state of current processor design, an area I have long had no interest in. But one point, Dell was getting money above the table from Intel, it's the Intel Inside marketing program, it's well known and they've been doing it for a long time. There is some controversy over how Dell accounted for it, and it looks like they did so in a misleading way, some heads might be rolling at Dell when the investigation is complete.

Because Dell took this money from Intel, they refused (or weren't allowed) to use Intel processors. This is one of the reasons Dell has struggled recently, esp. last year when AMD processors were clearly cheaper/better.

And to repeat what has already been said, ignore internet rumour mongers. I really doubt any hedge fund is committing huge sums of money to manipulate Intel options. That is typically the whine of a loser in a bad trade looking for someone else to blame instead of themselves. Hedge funds might be trading the options heavily but it's because they think some news is coming that's going to reward their positions.

Re: AMD
 

To get back to the point of this thread, NONE of the last two pages of info was in Strassa's analysis. Which, if he was doing a technical analysis of the stock in order to trade is fine, but if he was trying to do a more fundamental analysis then clearly it seems he just took abut 10 minutes to "research" the stock and hit on absolutely nothing that has any economic meaning.

I don't mean to be harsh or anything (it's not like I'm an equities analyst), but if he's going to work for MS/ML (not sure which one he's heading to) then he's going to need to be able to take a LOT of straight-forward feedback.

Re: AMD
 

[ QUOTE ]
[ QUOTE ]
Do I just assume anything that sticks out in a balance sheet is already worked into a stock price?

[/ QUOTE ]

Absolutely not. Both APT models and EMT assume there are traders taking positions to correct incorrect valuations. That doesn't happen instantaneously, even if you believe all that foolish EMT-hand waving.

Secondly, people routinely overlook/underlook at balance sheets for years on end. Enron would be an easy example. Any company guilty of channel-stuffing, it shows up on the balance sheet and other statements before they announce the earnings miss.

I've owned/followed AMD off and on for 15 years. It will break your heart.

[/ QUOTE ]

...and read today's news on AMD. Break your heart every time.

Re: AMD
 

fair enough, I wasnt approaching this as if I know anything--I know nothing about anything. I just saw a few things about AMD and tried to formulate some sort of argument, ideas.

Re: AMD
 

http://episteme.arstechnica.com/eve/foru...;r=268005334831

Some interesting insights into today's news from AMD.

Re: AMD
 

I am thinking of buying INTC for a swing trade under the assumption that more bad news will come out of AMD that is good news for INTC (market share, chip design, etc) Opinions?

Re: AMD
 

I haven't read all the responses so this may have been discussed.

People are starting to believe AMD will have to come to market with a financing. AMD has done several convertible offerings the past few years, and they'll probably choose that structure again since it is less dilutive than selling straight equity and has lame covenants/restrictions relative to a debt offering.

If they do a convertible offering, the convert arb guys who buy the paper will pound the stock getting their hedge off.

So, the big put buyers may be front running the convert arb guys.

Re: AMD
 

AMD announced a $1.8 billion convert offering today.

http://www.bloomberg.com/apps/news?pid=c...id=atFL1ex7.pQ8

Re: AMD
 

[ QUOTE ]
AMD announced a $1.8 billion convert offering today.

http://www.bloomberg.com/apps/news?pid=c...id=atFL1ex7.pQ8

[/ QUOTE ]
Just in the nick of time.

AMD is nearly out of cash, says analyst