March 18, 2006 Market Values: Challenger Pulls Ahead of Chip Giant By CONRAD DE AENLLE NY Times
http://www.nytimes.com/2006/03/18/technology/18values.html?pagewanted=print THE year is still young, yet the two leading makers of semiconductors for personal computers have already experienced moves of 20 percent in their stocks. To the great chagrin of Intel shareholders, no doubt, their stock has fallen, while Advanced Micro Devices' has rallied. Why the striking divergence? One simple reason. "The current A.M.D. offer on chips is just better," said Bob Turner, whose Turner Investment Partners runs two technology mutual funds. "What they offer is a microprocessor integrated with memory that is better than Intel's. They really got it right this time." Until recently, A.M.D. had a reputation for seldom getting it as right as Intel. But A.M.D. has caught up with its rival and even surpassed it, and it has been able to exploit this design gap, as industry analysts call it, to grab market share. "Silicon Valley has been following this saga for many years," said Kevin Landis, manager of the Firsthand family of tech funds. "Intel had the technology lead and the manufacturing lead, then it had the brand lead. I got used to the idea that Intel was always one step ahead, but A.M.D. finally demonstrated that to be not the case, and the market is having to admit that to itself." That admission has sent A.M.D. to a significant valuation premium over Intel. A.M.D. trades at nearly 100 times its trailing 12-month earnings, compared with just 14 for Intel. Using analysts' estimates of 2006 earnings, the gap is not as big; Intel's multiple rises to the high teens the exact level depends on who is doing the estimating and A.M.D.'s falls to anywhere from the high 20's to mid-30's. Still, the discrepancy remains wide, showing that investors are willing to pay more a lot more for the extra earnings growth expected from A.M.D. Some investment advisers say A.M.D. is the better holding over the long run, but others are standing by Intel in the belief that it has become a cheap, low-risk choice. Mr. Landis is in the first camp. "We stayed away for years because they developed a reputation as an also-ran," he said of A.M.D. "I came late to the party and bought a little." Mr. Turner also prefers A.M.D., although he, too, is not unabashedly enthusiastic. "The stock may look expensive," he said, "but if we get robust earnings, it looks O.K." He finds some chip stocks better than O.K., however, including Marvell and Broadcom. Those two are multiyear holdings, he said. "We don't think we're ready to place A.M.D. in that category yet." And he certainly is not willing to put Intel in that category. Mr. Turner does not own it because he is a growth manager and he says he believes there is just too little of that in store for Intel at the moment. Signs of a turn are hard to glimpse. A.M.D. continues to expand its market share, thanks to sales agreements with big PC manufacturers like Lenovo in China, and it has been particularly aggressive lately in challenging what it describes as the monopoly practices that Intel uses to compel manufacturers to use its brand exclusively. Intel warned this month that competitive pressures would drag first-quarter revenue below the company's previous estimates and that this might force profit margins down, too. Glen Yeung, an analyst at Citigroup, said he expected financial results "well below" even the reduced expectations of the company and Wall Street. In a note to clients, he forecast earnings about 25 percent below market projections. He changed his rating on Intel's stock upward from hold to buy. "We anticipate some controversy over this call, given the well-understood and ongoing share gain by A.M.D." and Intel's need to cut prices to draw customers, Mr. Yeung wrote. BUT Intel's discounted valuation and leadership in the chip business, though dwindling, plus the lift it is likely to get from stronger computer sales as Microsoft introduces its Vista operating system, make it worth owning, he contends. "By upgrading now, we signal our belief that much of the bad news is priced in by the market," Mr. Yeung said. Mark Mowrey, editor of the Tech Value Report newsletter, also finds Intel, for all its troubles, too good a bargain to pass up. "Admittedly, I worry about A.M.D.'s recent competitive gains and potential wins in monopoly court," Mr. Mowrey told subscribers. "Still, I believe that Intel's stock price adequately reflects these difficulties in the near term, while not sufficiently incorporating both Intel's greater breadth and still fantastic long-term capability for technological inventiveness." ================================ George Antunes, Political Science Dept University of Houston; Houston, TX 77204 Voice: 713-743-3923 Fax: 713-743-3927 antunes at uh dot edu Reply with a "Thank you" if you liked this post. _____________________________ MEDIANEWS mailing list [email protected] To unsubscribe send an email to: [EMAIL PROTECTED]
