Wednesday, July 16, 2008

Intel Beats; AMD Thursday

Intel (INTC) reported revenues and earnings that beat Street estimates on Tuesday. See my summary of the Q2 2008 Intel analyst conference. AMD will report after the market closes on Thursday, July 17, 2008.

AMD investors are doubtless wondering whether Intel did well because the overall microprocessor end market was strong, or because it took substantial market share from AMD.

AMD preannounced three unusual items, but did not contradict its prior guidance that revenues would be seasonally down in Q2. The big scary item was a $880 million write down from its ATI acquisition, which is actually almost meaningless because it is a non-cash item. It will have a $32 million restructuring charge, which is real. It also sold some old equipment for $190 million, which strengthens its cash position. [See the AMD July 9, 2008 SEC filing]

The most important data to look at Thursday is Q2 revenues. Intel's revenues dropped 2% from Q1 to Q2 (Q2 is typically seasonally slow for microprocessor revenues, with Q3 and Q4 stronger due to back-to-school and holiday sales). If AMD revenues dropped 2 to 4%, I would characterize that as okay. Worse than 4% I would start to worry, even though excessive worry is already built into the stock price. Anything from a 1% drop to positive territory will be cause for celebration.

If you look at past AMD year-over-year and sequential comparisons, or AMD to Intel comparisons, you get a very broad spectrum of possibilities.

AMD Q1 2008 revenues were $1.505 billion, down 15% sequentially from $1.77 billion, but up 22% from $1.23 billion the year-earlier quarter

INTC (Intel) Q1 2008 revenue was $9.7 billion, down 10% sequentially from $10.7 billion in Q4 2007, but up 9% from year-earlier $8.85 billion (Q1 2007). Q2 revenue was $9.47 billion, down 2% sequentially from $9.7 billion, but up 9% from $8.68 billion year-earlier.

Suppose AMD Q2 revenue is up 22% from year-earlier Q2 of $1.38 billion, as it was in Q1. Then Q2 2008 revenue would be $1.68 billion, up 11.6% sequentially. That seems unlikely.

Suppose AMD is down 2% sequentially like Intel. Revenues would be $1.47 billion.

Guidance was seasonally down Q2 revenues. Q2 2007 revenue, however, was up 12% sequentially from Q1 2007.

So it is possible AMD is just being conservative, given that the main factor in their sales is Intel pricing schemes, which are not in AMD's control. However, Intel reported healthy profit margins the first half of this year, so they are not putting as much pricing pressure on AMD as they were in 2006 or 2007.

AMD seems to finally have its quad-core Opteron production ramped up. It may be doing better in its graphics division, and it actually managed to beat Intel to the punch introducing a new line of notebook computer system chips. Computers built around Phenom processors seem to be available from most major retailers.

So a good Q2 would not be a complete surprise. If it is a good Q2, I would like to see an updated roadmap for 2009-2010. Intel is already out selling pitching microprocessors that it is only dreaming of; AMD paused in its wild, rosy roadmap announcements during the Barcelona delays.

I would also want to hear that AMD's 45 nm chips are starting to come off production lines. AMD has done a terrific job closing the gap with Intel on chip manufacturing, but there is still a gap and it does help Intel keep its chips more competitive than they would be otherwise.

I am a long-term investor in AMD.

Keep diversified!

More data:

You can read my summary of the AMD Q2 analyst conference when it is ready on Thursday, or listen yourself from a link on the AMD investor relations page.

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