AMD

[Jason Strasser (strassa2)]

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

[CrushinFelt]

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)?

[technologic]

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.

[Jason Strasser (strassa2)]

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.

[Jason Strasser (strassa2)]

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

[technologic]

[ 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

[Evan]

[ 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?

[spider]

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!

[SlowHabit]

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]

[maxtower]

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