Advanced Micro Devices Inc (AMD)

[KeithDust2000]

Analysts favour giant Intel despite AMD´s impressive sales triumph
Advanced Micro 'did the unthinkable' by outselling its bigger rival in October

By SIMON AVERY

Thursday, November 10, 2005 Page B16

TECHNOLOGY REPORTER

Advanced Micro Devices Inc. has won a rare victory over Intel Corp., outselling its much larger rival in U.S. stores last month.

The news that a company less than one-seventh the size of Intel could outmuscle the chip giant caught analysts by surprise, but it hasn't altered the general feeling on the Street that Intel remains a better buy than AMD.

During October, AMD chips were in 49.8 per cent of all personal computers sold in U.S. stores, compared with 48.5 per cent for Intel chips, the market research firm Current Analysis says.

"AMD did the unthinkable by surpassing Intel in October. Continuing to hold this lead in the holiday season would be a colossal win for the company," said Matt Sargent, director of research at the Sterling, Va.-based firm.

"The October win for AMD within retail proves that AMD can compete head to head with Intel when given the opportunity. Intel leads the overall U.S. market not due to customer choice, but because AMD is not an option from several [manufacturers]. This win may cause these [companies] to consider AMD as they fight for a larger share of the consumer market," Mr. Sargent wrote in a report.

Dell Inc., the No. 1 seller of personal computers in the United States, uses only Intel chips in its machines, leaving AMD at a distinct disadvantage.

Several factors may help shift that balance soon. It is widely expected that Wal-Mart Stores Inc., the world's largest discount retailer, will begin selling a sub-$400 (U.S.) PC running an AMD processor this holiday season.

In addition, there's speculation that Dell could be reassessing its Intel-only policy. Very recently, Dell began selling stand-alone AMD processors on its website. These can be added into customers' existing computers, but do not come as part of a Dell system. The development has got the rumour mill suggesting that Dell will soon offer an AMD machine.

"Whether Dell will, or will not, offer AMD systems is anyone's guess, but the likelihood does seem to be increasing," Cody Acree, an analyst with Legg Mason wrote in a report on Monday. "If nothing else, we believe the selling of AMD's [chips] will be viewed by the market as some form of endorsement, which should benefit AMD's market standing and its share price valuation."

Dell's recent financial warning and weak performance in its last quarter has caused a "groundswell" of calls that the company needs to start offering AMD's chips in its devices to stay competitive, he added.

AMD chips are generally less expensive than Intel chips. The average selling price of AMD's chips is about $88, compared with $143 for Intel, according to A.G. Edwards.

Even with its strong momentum, however, AMD is having trouble winning over most analysts. More than two-thirds of those following the company, or 17 of 31, rate it a "hold" or "sell." In contrast, more than two-thirds of the analysts following Intel, or 32, rate it a "buy."

The cyclical nature of the microprocessor industry carries huge risk, and both firms are spending billions of dollars to upgrade their manufacturing processes. The analysts expect Intel to be first out of the gate with the next phase of technological enhancements, beginning production as early as January. AMD, however, isn't expected to catch up for months.

Hans Mosesmann, senior vice-president of Moors & Cabot Capital Markets, says Intel is sacrificing growth in the fourth quarter to clean out its inventory of chips made from the old manufacturing process. In contrast, AMD is actually increasing production to try to grab more market share. Intel's strategy should leave it better positioned than AMD in the beginning of 2006, he said in a report.

Mr. Mosesmann has a "buy" recommendation on Intel and a 12-month price target of $34. He rates AMD a "sell" and has a $10 target on the stock.

One move that is winning AMD praise is its decision to spin off its flash-memory unit. Last Friday, in a filing with the U.S. Securities and Exchange Commission, AMD said it aims to raise around $835-million through an initial public offering of stock and debt of Spansion LLC.

Spansion makes memory chips that store information in mobile phones and other electronics even when they are turned off. The new company will be 60-per-cent owned by AMD and 40-per-cent owned by Japan's Fujitsu Ltd.

The sale will help AMD focus on making chips for desktop, laptop and server computers, while at the same time helping the company clean up its balance sheet by removing as much as $780-million in debt from the books.

But over all, the actual transaction "will be relatively neutral," as Spansion is only likely to achieve break-even profitability next year, David Wong, an analyst with A.G. Edwards, wrote in a report last week. Mr. Wong rates AMD shares a "hold" and offers no price target. He has a "buy" recommendation and a 12-month price target of $30 on Intel.

Chip wars

Underdog Advanced Micro Devices Inc. sold more computer chips in U.S. stores last month than giant Intel Corp. But AMD is still having trouble winning over most analysts.

http://www.theglobeandmail.com/servlet/ArticleNews/TPStory/LAC/20051110/REDGE10/TPBusiness/MoneyMark....

It seems like Hans Mosesmann (from M&C) still beats DARBES´s friend from UBS hands down in terms of pessimism towards AMD`s stock. Not mentioning the fact that his statement quoted in the article makes no sense whatsoever.

As for which stock is the better buy, with both trading at $24-25
at this point, it will be easy to check...