Interesting play. It's hard for me to swallow that instant 33% loss due to the bid/ask spread.

While this sounds like a good way to bet on your belief that the stock will pop after earnings guidance, I think you're being a little optimistic on your prospects if that scenario doesn't come to pass.

Due to the distant strike-price, the degradation rate of these contracts as the expiration date approaches is going to be pretty steep, and you're going to need to see some big price movements to overcome this. As a point of comparison, look at the October calls. The Oct 25 calls are worthless, which tells me that if the stock stays flat through Q3, your contracts will suffer the same fate. And the Oct 22.50 calls are also selling for 0.15 (and being bought for 0.10), which tells me that even if the stock approaches $20 by the end of Q3, you could still be eating that 33% loss due to the spread.

I think you should look to dump these contracts as soon after earnings as you can, regardless of what happens.

I'm thinking the Jan 22.50 calls might be a better play at 0.35. There's less upside if Wall Street likes the guidance in the Q2 call, but you'll still have a chance at salvaging a good chunk of your investment if that doesn't come to pass.

Me, I don't have the guts to try either play. But good luck on your investment. It's certainly a good way to amplify your anticipation of the earnings release. ;)

I had a limit order in to sell my AMD puts if it reached a price that's a 100% gain for me, and that order was filled today. Ends up being a 93% gain after commissions. Just didn't want to sit on paper profits like that. Bought on June 6th, rode the stock from 29+ to 21+.

I think the stock can go much lower, but I'm not as confident in the time-frame. Depends on what they say in their Q2 call.

I'm also planning to earmark some of this gain for INTC leaps, just need to find the right time to buy (not quite there yet, I don't think).

Thanks to folks here for advice along the way...

Chances are, AMD is going to do one of two things:

- Either be honest and fess up, and guide lower for Q3 based on competition, which would lower the stock immediately...
- Or, try to act as if nothing is wrong, that they have a solid strategy, and aim for the moon, in which case the stock will fall during the quarter as Wall Street realizes they have no hope of achieving their sky high forecasts, and further punishes them for being disconnected from reality.

This is pretty much my assessment as well. It's true that my trepidation arises from the fear that the latter scenario will occur, and that the stereo salesmen will do anything they can to prop up their stock. And yet, when I think about it, this scenario will probably be more profitable in the long run as the shit could really hit the fan in Q3. Might even be an opportunity to buy a couple more puts (the short time frame does worry me a little, though. AMD is proficient at telling tall tales, and there are always plenty of people willing to believe them).

If they do guide lower and try to get all the bad news out of the way (ie, the smart thing to do), I'll probably close out my position sooner rather than later.

Has anybody done an analysis of what impact AMD's revenue shortfall could have on earnings? If $1.215 billion in revenue is a 9% miss from expectations, that's about $110 million less revenue. Any part of this amount that's due to lower ASPs will come straight from the bottom line. Net income last quarter was $185 million. I really wonder if investors have internalized a 50% or more reduction in EPS for Q2. Then again, this scenario is more probable next quarter when ASPs will really be under heavy pressure from Woodcrest and Conroe. But so far it seems the general sentiment is that 9% isn't TOO bad. I'm not so sure....

The big question for me is how long to hold on to my AMD puts. I bought Jan 25's about a month ago when the stock was just north of $29, and after the big day today I'm sitting on a 75% gain. I feel like I'm crazy to hold on for more, but so far I guess I think it's even crazier to believe that AMD will stay above $20 through the 3rd quarter. I'll probably hold through the earnings report for better or worse...

I thought someone showed a link where AMD retail market share climbed as high as 75%.

Here is more of that article, which goes into some detail on this:

======================

The shift came because of an emphasis on inexpensive notebooks containing Celeron M chips, according to Sam Bhavnani, director of research at Current Analysis. In notebooks, Intel expanded its market share from 57.3 percent in May to 66.2 percent in June. AMD's notebook share dropped from 42.3 percent in May to 33.4 percent in June.

A lot of those Celeron notebooks were Toshiba models selling for $599 and less, Bhavnani said.

"They are challenging HP-Compaq," he said, referring to a Hewlett-Packard division. "Where Intel really came back strong is notebooks."

AMD still holds the lion's share of the desktop market. AMD accounted for 73 percent of all retail desktops in the United States, while Intel accounted for only 26.8 percent. But it's a mixed blessing, Bhavnani noted. AMD in May was dominant in the machines that cost $750. The chipmaker accounted for 84.5 percent of desktops costing up to $500 and 88.9 percent of desktops priced between $500 and $750.

By contrast, Intel accounted for 52.1 percent of desktops costing $750 to $999 and a whopping 91.7 percent of those starting at $1,250 that month. The fancy Viiv computers, geared for home entertainment, have done well, going from a nonexistent product category at the start of the year to 10 percent of the U.S. retail desktop market. Intel CEO Paul Otellini has said the goal is to sell more Viivs this year than it sold Centrino notebooks in 2003, the first year those came out.

"Above $750, Intel really controls things," he said. "It's been the story for the last four years."

Actually, I think you are trying to be difficult, but whatever...

10% is just based off my past experience of following Intel. Granted, there haven't been many pre-earnings warnings lately until last quarter, but back during the growth days that was my estimate for a threshold. Again, looking at last quarter, they initially guided towards revenue of $9.1-$9.8B, and felt it was worthwhile to pre-warn when their new estimate was $8.7-$9.1B. This represents a midpoint change from $9.45B to $8.9B, which is a 6% drop. So if anything my estimate of a threshold to pre-warn might be pessimistic. Perhaps the drop in GM added some incentive to pre-warn.

Don't get me wrong, my expectations are very low for this quarter's results (and likely the rest of the year), but IMO those waiting in anticipation for more bad news before the earnings release can stop holding their breath...

What I described is standard practice for most companies, and Intel has abided by this for as long as I've been following the stock starting around '95.

Here is the text from their earnings warning last quarter:

"SANTA CLARA, Calif., March 3, 2006 – Intel Corporation today announced that first-quarter revenue is expected to be between $8.7 billion and $9.1 billion, as compared to the previous expectation of between $9.1 billion and $9.7 billion, primarily due to weaker than expected demand and a slight market segment share loss.

The company expects the first-quarter gross margin percentage to be adversely impacted by the change in revenue. Expenses (R&D plus MG&A) are expected to be lower than previously forecast due to lower revenue- and profit-related spending.

Effective with this announcement, Intel has begun its “Quiet Period.” Intel’s Business Outlook, published in the company’s fourth-quarter earnings release dated Jan. 17, 2006, and in its Form 10-K for the year ended Dec. 31, 2005, no longer reflects the company’s current expectations. The company plans to provide a new Business Outlook when it reports first-quarter financial results on April 19, 2006."


Here is the description of the quiet period on www.intc.com:

Intel’s Earnings and Business Update press releases contain certain forward-looking statements (see Business Outlook), which are subject to known and unknown risks and uncertainties (including those noted in the releases and in Intel's SEC filings on, e.g., Forms 10-K and 10-Q) that could cause actual results to differ materially. Intel will keep the current published Business Outlook publicly available on its web site, and the public can continue to rely on this Business Outlook as still being Intel's current expectations on matters covered unless Intel is in a “Quiet Period” or publishes a notice stating otherwise. Intel intends to publish an earnings release on July 19, 2006. From the close of business on June 2, 2006, until publication of the release, Intel will observe a “Quiet Period” during which Intel’s published Business Outlook should be considered to be historical, speaking as of prior to the Quiet Period only and not subject to update by the company. Intel is currently in a Quiet Period. None of the forward-looking statements in the Business Outlook should be considered as the current expectations of Intel. If we use any non-GAAP financial measure (as defined by the SEC in Regulation G) in any Earnings conference call, you will find the required presentation of, and reconciliation to, the most directly comparable GAAP financial measure below under "Other Financial Information" for the applicable quarter.

(Bold left intact from original text)


So technically, yes, the Quiet Period implies that any previous guidance is no longer valid. But whenever Intel's quarterly results have differed materially from their guidance by more than 10%, they have issued an earnings pre-announcement concurrent with the start of the quiet period. I would expect no less of them now.

What do earnings warnings have to do with the "quiet period"?

It's an extrapolation on my part based on Intel's past behavior. You're right, I shouldn't have made it sound like it was some rule or something, but historically any pre-announcements by Intel regarding earnings has happened concurrently with the start of the quiet period. The fact that the quiet period started on June 2nd, and we have not heard anything, gives me confidence that Intel is within 10% of its quarterly guidance. Again, this is based on past behavior by Intel management over the last decade.

If warnings were to come, when would they come for both AMD and Intel?

I don't know about AMD, but I was over at www.intc.com earlier this week, and there is a statement that Intel is now in its quiet period.

So no further warnings from Intel this quarter...

Nice trade.

I bought some some jan 25 puts on Monday when it was just north of $29. I might see these go in the money alot sooner than I thought, although my intention is to hold them through 3rd quarter earnings. We'll see how greedy I'm feeling...

I'm seriously considering a speculative play and buying a small number of AMD puts. Just curious what exp/strike strategies people are using. I'm thinking of either the Oct 25's or the January 22.50's.

I'm continuing to average into INTC this summer as a value play, but don't expect much from the stock until next year (but what a year it will be). I think AMD declining during this transition is a no-brainer, and a nice way to make some money in the meantime.

Thoughts?

One step at a time.

I completely agree; I still find myself feeling extremely cautious as well (of course, as a battered and bruised Intel long, you'll have to excuse me if my cynicism continues unabated).

Intel's Q1 warning really has me spooked. All the focus is on the Intel vs AMD battle, but all the math points to this quarter suffering from rising inventories and a general slowdown, and that could be bad news.

My worst fear is that this cycle has peaked and is on its way back down, and Intel has missed out completely because of crappy products. If that's true, then I fear that we might not reap the rewards of this much improved product line until 2007 at the earliest. And when I say "reap the rewards", I'm only talking about gaining back GMs and EPS. I've never seen such negative market sentiment for INTC, and I wouldn't be surprised to see a 6-month lag in the market once the fundamental business finally starts humming again.

As a counter to my worst fear, my best hope is that this "slowdown" is nothing but lots of really smart buyers noticing that if they simply wait 6 months to make a purchase, they can get higher performance, lower power, and a 64-bit OS that will provide obselescence protection an order of magnitude better than today's offerings.

Either way, I'll continue to hold my INTC, and continue to dollar-cost-average into it at these depressed prices. But after the Q1 warning, I'm expecting the worst this year.

Long term (2008 and beyond) is a different story. Given what's coming down the pipe, I can't think of a bigger no-brainer than INTC if your timeline is a few years out. That's what I'm betting on, anyway...

IF INTEL IS GOING TO ALLOW ALL THIS CRAP TO WORK TOGETHER, AUTOMATICALLY, THEN THEY WILL DO FOR ViiV what Centrino did for wireless.

THAT WILL SELL LIKE HOTCAKES.

I'm telling you guys, 2006 is going to be the year of the media PC.

I honestly don't know if Intel will really get all of your devices to work together seamlessly from a PC. As time goes on, it will most certainly get better, I'm sure. But what I do know is that a Viiv PC can eliminate almost every device you have listed, right now, today.

All I have by my TV is my Media PC, a Comcast cable box, and a tiny remote-controlled receiver that drives my powered 5.1 speakers. And I can do anything I want with my media, and 95% of the time I only use one remote (the only other remote I use is for my speakers, usually just to turn them on or off).

DVDs? - Play them through the PC's DVD drive (and the image is even upscanned to my HDTV's higher resolution).

CDs? - Play them through the PC's drive...or better yet, rip all your CDs to your hard drive including the album cover that's automatically downloaded from the Internet as soon as you put the CD in the drive. Scroll through your entire collection of album covers to play what you want (the New Year's Eve party I threw had half my CD collection on shuffle).

TiVo? - Throw it out. Use the program guide that's automatically downloaded from the internet, and record any shows to your hard drive. FOR FREE. (although, I am unsure what TiVo's cooperation in the Viiv rollout entails. They might have better software that they could try charging for. But Windows MCE does the job just fine IMO).

Cable/Dish? - Connect the included USB IR blaster to your cable or satellite receiver, and your PC's remote can now change the channels. The PC will change the channel for you when it's time to record a show you've selected. The most promising part of Viiv's rollout is that DirecTV is developing a PC card. When I can once again use a dish after I get tired of living in a downtown loft, DirecTV will get my money if nobody else has followed suit by then. Then no more cable box!

Saving TV shows? - Burn any program you've recorded to DVD using the PC's DVD drive. No more need for VHS. Burning is a snap, and I've verified the DVDs are watchable on normal DVD players.

Audio? My media PC outputs direct 7.1 audio, as well as an optical digital signal for direct DVD audio. My remote-controlled Logitech Z-5500 speaker system takes 3 inputs - direct 5.1 inputs, digital optical, and digital coax. I've connected both a digital optical cable, and direct 5.1 cables. When I play games, I select the direct 5.1 inputs. When I play DVDs, I select the digital optical input, and the receiver decodes the Dolby Digital surround signal. This is all using the remote. Normal TV works with either input, so I only have to switch occasionally.

Video? I have a Nvidia 6600GT with 2 video outputs. The DVI output goes to my HDTV, the RGB output goes to a monitor on a desk about 20 feet away, using a shielded SVGA cable I ordered online. I have a Bluetooth keyboard and mouse on this desk, so I can do "normal" PC tasks like browsing and running Quicken using this same machine (while the TV is playing! Although since I couldn't wait for Viiv, I only have Hyperthreading, and not a true dual-core. But it still works great).

Pictures? My media PC has a 7-in-1 card slot on the front, which takes most standard removable flash cards. I can easily view pictures immediately on my HDTV.

Gaming? I have 2 wireless Logitech Rumblepad gamepads, that feel exactly like PS2 gamepads. PC games rock on a 56" TV. :D

Ease of use? Once everything is set up, this really feels like a consumer entertainment device. There's a PC power button on my remote, which immediately puts the PC into standby mode (all lights and fans turn off, though state is restored like on a laptop). Hitting this power button again results in near instant-on, and the system is ready to watch the last channel that was on when I turned it off. This same remote also has a TV power button.

The downside to all of this is that it took me several evenings after work to get everything hooked up and configured properly. Everything I mention you can already do thanks to Windows XP Media Center Edition (much like one could always buy a wireless laptop), but I am hopeful that Viiv will make installation and setup much smoother, just like Centrino did for wireless connectivity.

If I sound like a paid advertisement, I apologize. But after having this system up and running for a few months now, I can't believe the change in my "digital habits" so to speak. I never used to be in to this kind of stuff, and now I can't get enough of it. Intel's timing is impeccable. They really don't need to do much on the technology front to make this trend explode, because Windows MCE already enables most of the functionality. But by bringing together content providers, driving real content that people actually want, and marketing the hell out of this stuff, we are poised to see a huge evolution in PCs. And Intel stands to benefit greatly...

If you're a bullish Intel investor, and you believe in the company's platform strategy, and you believe that Intel's gigantic push to create a new digital experience in the home through Viiv is going to be as successful as their Centrino platform, then it follows that we could very well see a resurgence and explosion in HDD usage by consumers.

My last PC (and a decently high-end one at the time with a 2.4GHz Northwood) had a 30GB hard drive, and that was plenty for me. However after I recently moved, I decided that I was finally going to bite the bullet and put together a home theater system (never had one because I hardly watch TV, but my DVD collection has slowly grown over time).

Instead of buying a bunch of components, I took the plunge and bought a full-fledged media PC (from www.s1digital.com). The only other component I bought was Logitech's Z-5500 5.1 powered speaker system with remote.

I'm not typically a power-user, but I am now doing things with my PC that I never dreamed of. I bought this thing with two 360GB hard drives, and I wish I had more. When a 24x increase in capacity isn't enough for one end-user, I think that signals a pretty significant jump in potential demand.

Over on SI's Intel board, somebody made a prediction a few weeks ago that 2006 was going to be the year of the media PC. I absolutely believe that to be true, based on my own experiences. As an "early adopter" before Viiv is rolled out, I can say that this technology is without a doubt ready for prime time, and I look forward to seeing what happens when everything is made easy and seamless for the end-user through Viiv.

AMD just doesn't get it. I've done a LOT of business in China, and the technology transfer is ONE WAY. This could be a death knell for the American semi X86 industry. Watch it happen...

I wholeheartedly agree, if the wording of the article is correct.

My one hope here is that this might be a case of shoddy journalism (I know, it's very hard to believe journalists could get something wrong <g>). The little tidbit about AMD licensing its x86 technology is included almost as a throw-away line, and I'm hoping that the author meant something else (perhaps something like outsourcing its manufacturing).

It also says this deal was struck 2 months ago, and I would like to think that SOMEbody SOMEwhere would recognize the enormous implications of such a licensing deal, and report about it.

If this is indeed true, I'll be right with you screaming that the sky is falling. I just can't imagine that AMD would be this dumb. Then again, we ARE talking about AMD. <shudder>

http://www.firingsquad.com/news/newsarticle.asp?searchid=8961

What's interesting to me are the reader comments at the bottom of this little article. Are system crashes and driver problems really that prevalent on the new Xbox? Aren't consoles supposed to eliminate those types of issues?

As somebody who makes their living from the PC industry, and who started to get depressed yesterday while shopping at how hard it was to find a store with a decent stock of PC games, I find myself taking a small amount of satisfaction at the thought of buggy consoles.

Maybe it's my old age combined with my bias that REAL gamers use PCs...<g>

Excuse me while I de-lurk, but I can't help but notice that Dan seems to have taken a trip back in time about 18 months when everybody was assuming that Prescott was a watt-monster because of the process, when in fact it was the design that was the problem. I thought Dothan's success would have proven that to be the case, but I should have known that AMDroids could come up with new math that would explain how 5% more transistors for EMT64 would result in a 2x-3x increase in power budget.

As far as I'm concerned, they can just go on believing that Intel's process sucks; it will make it that much more satisfying to watch the reaction when good, solid designs once again start exiting the design pipeline (as opposed to pie-in-the-sky dreams like Prescott, which only made it to market thanks to countless engineering diving saves that nobody here will ever know about....thank god there is nothing else coming down the pipe that has Albert Yu's influence, I swear everything that guy touched turned to lead).