AMD

[jumbojacks]

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.

[jumbojacks]

[ 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

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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.

[Karmic]

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.

[MrBlue]

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.

[jaydub]

[ 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

[spider]

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).

[SomethingClever]

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

[/ QUOTE ]

lol

[SomethingClever]

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.

[jumbojacks]

[ 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.

[maxtower]

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