Monday, March 1, 2010

Intel and AMD Stock Report


Intel and AMD are the largest players for computer microprocessor chips. Both companies experienced week demand for their products through 2009 due to the weak world economy but saw a glimmer of hope with strong fourth quarter results. Analysts are predicting stronger global demand for computers as the world climbs out of the recession a likelihood Intel and AMD are aware of; but what company will be better positioned to meet the new demand?
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Intel
INTC is the world’s largest semiconductor chip maker and has been the dominate market maker in the industry for years. The company continues to push large amounts of cash in R & D leaving many to believe they will hold this position for years to come.

Intel’s revenue is highly correlated with PC sales which have been lower due to the current economic conditions.  Intel may be seeing the light at the end of the tunnel as there was a large rebound in computer sales for the fourth quarter of 2009. The company reported strong growth in its laptop segment of 28% and their data center group of 42% which may be a sign businesses are beginning to invest again in their servers.

Future outlook
Intel is anticipating a slower quarter to begin 2010 which is usual for PC demand. Intel also said the average selling price of its microprocessors rose in the fourth quarter. Intel is excited about some of its new technology and manufacturing technology as the company can now advance the performance of its chips and produce them at a lower cost.

AMD
Has had more difficulty dealing with the low demand in the pc markets with three consecutive quarterly losses the company ended its streak posting $1.18 billion in earnings for its fourth quarter 2009. AMD was aided by its number one competitor Intel with a $1.25 billion settlement from a former lawsuit.

Future Outlook
AMD also anticipates a slower first quarter for 2010 but intends to benefit in the near future from business investment and stronger pc sales coming out of the current recession.

Comparison
Intel has had more consistent operating results as it has not reported a negative year in earnings for the past 10 years where AMD has struggled with the red ink, with six negative earning year end results in the past 10 years.


Intel
AMD
Current Price
20.53
7.91
P/E
26.7
17.6
P/B
2.7
8.2
P/S
3.3
1.0
Div Yield
2.8
---
PEG
1.0
2.4
Fair Value (Morningstar)
23.00
5.00


Conclusion

Although both companies’ stock prices have been anything but positive through the 2000s I hope to see some positive returns from Intel as demand for PCs begins to rise along with business investment for newer and faster servers. AMD has had poor financial performance for the past 10 years which leads me to believe the underdog isn’t going to pull off any upsets in the near future. Intel is also putting price pressure on AMD which continues to lower their margins. After AMD’s spin off of their manufacturing and Intel’s investment to manufacturer cheaper chips; this price pressure will intensify.  AMD’s valuation ratios are slightly better until we incorporate growth then Intel becomes the clear winner.

After my analysis I see that Intel will be better positioned to capitalize on the increasing demand for microprocessors and development of emerging markets with better capital positions for investment.

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2 comments:

  1. What a helpful post really will be coming back to this time and time again. Thanks...

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  2. Both are very strong competitors very effective information, Thanks
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    ReplyDelete