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Wednesday, September 25, 2002 1:19:21 PM
As for valuations, it is virtually impossible to value a company like AMD that is presently at a crossroads. Although their position is similar to that 5 or so years ago, I believe it is marginally better now. Nonetheless, in the next few months, AMD will either return to profitability, fold, or be bought out. I see no other possibility.
To return to profitibility, several things must happen. They must have a competitive product, they must see a recovery in Flash, and they must either see a PC recovery, or increased market share.
AMD has recently paper-launched products that appear to be competitive. We will know in just a few days if there are volume parts or not. The Hammer delay hurt, but in retrospect it seemed inevitable considering how much they are trying to do with that single Fab in Dresden. If AMD can finally execute on Hammer, they will be more than competitive.
We will just have to agree to disagree that Intel has a much more competitive product line. That may be true today, but may not be true next week.
Flash is too hard to call right now. Even if AMD's processor business recovers completely and they execute flawlessly, they will likely lose money without a Flash recovery. Inventory is clearing, though, so it might pick up.
Market share is a bit tricky. Contrary to the popular opinion that Intel has the tier one manufacturers in its back pocket (except Dell obviously), I believe that AMD could gain several design wins and get tier one penetration if they were better able to meet the tier one needs in terms of volume and support. I have heard grumblings that support to the tier one companies is one of AMD's biggest shortcomings.
So, AMD could go wither way. Whichever way it goes, it will be dramatic. I have been tempted to dump some speculation money into AMD at these levels just to ride the next rally.
But I am rambling... My point is that valuing AMD on earnings is impossible - there are none. Valuing them on visibility is difficult too. In the past, one could generally assume that tangible book value represented a good bottom, but AMD has blown through that as well, as have many other companies.
Valuing Intel is a bit easier since it has stable earnings. Though I am not really interested in either stock right now, I would buy Intel if it approached historical valuations. I would definitely be a buyer in single digits.
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