Tuesday, April 08, 2008

AMD's Sagging Fortunes

How the world has changed in the semiconductor sector!

Just about two years ago, I wrote this post in observance of AMD's successful revenue and profit growth, while Intel struggled.

This morning, however, the Wall Street Journal published an article detailing AMD's recent woes, including a 10% cut in its workforce.
What went wrong?
Nearby is a Yahoo-sourced five-year price chart of AMD, Intel and the S&P500 Index. It seems that my post from May of two years ago, based upon another Journal article, from that time, caught AMD just past its stock price apogee.
Today's Journal article notes,
"The company has been coping with a series of problems, including a heavy debt load from its 2006 acquisition of ATI Technologies Inc. and a stronger line of competing products from Intel. AMD counterattacked in September by announcing a new line of chips that pack the equivalent of four electronic brains on a single piece of silicon.

In December, AMD disclosed technical defects that affect models of the chip for server systems and desktop PCs. It has now introduced versions without those bugs, but computer makers held up purchases in the meantime, said JoAnne Feeney, an analyst at FTN Midwest Securities Corp.

She added that demand has been softening for desktop PCs, a field where AMD has been the strongest lately. "They were gaining share in desktops, which paradoxically exposed them more" to the demand problem, Ms. Feeney said.

John Lau, an analyst at Jefferies & Co., estimated that the total PC market declined about 10% from the fourth period, with AMD's 15% drop also reflecting losses in market share."
So, putting the pieces together, it seems that AMD's acquisition of ATI, Intel's own counterstrikes, and then AMD's management troubles combined to push its stock price down ever since that brief window of triumph.
Since that brief, two-year period of outperformance of the index and Intel, AMD has had a pretty much monotonic decline, as depicted by the nearby Yahoo-sourced price chart for the past two years.
Even so, as the first chart clearly shows, AMD is still not tremendously far below Intel over the longer timeframe. After its rollercoaster ride up and down, AMD looks to have returned to the same overall neighborhood of performance that Intel has shown by its nearly-flat trajectory over the period.
Both have underperformed the index for five years, indicating why neither shows up on the list of equity selections for my portfolios.

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