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Bet Window Still Open

Written by Brian Hicks
Posted November 22, 2005

It feels good to root for the dark horse. But in a race, all bets are off once the horses leave the starting gate. Good thing for us the stock market doesn't run the same way, allowing people to take notice of an underdog and ride it to the top.

AMD keeps running strong, and the race with Intel gets more interesting by the day.

I first told you about AMD (Advanced Micro Devices) a few weeks ago. Since I recommended it, the stock has shot up almost 10% to its current level above 27 bucks a share.

(By the way, it doesn't hurt when the Wall Street Journal does a feature on your stock, presenting the same bullish case. See: Advanced Micro Devices Has Room to Grow - WSJ, Tuesday, November 21)

 


 

 

Clearly, investors are laying down chips for this chipmaker. But here's the thing: Everyone's betting on AMD, but they don't know what I know.

Same Horse, Different Reason

In my column "All My Dollars," I spelled out how AMD is setting itself up for long-term competition with the Leviathan Intel.

You see, Intel, like Microsoft, achieved the honor and shame of ubiquity:

Everyone's got Intel guts in their machine, and so Intel is often blamed when something goes wrong.

AMD is not everywhere. That keeps their profile low while drawing many loyal customers (Apple, anyone?) Indeed, they only have a 17.8% chunk of the market to gnaw on.

But 17.8% is up from 16.2% just a quarter ago, surpassing analyst estimates while Intel is falling short. In Europe, the rise has been even more pronounced (+5% over the past year).

We see inverse variation between Intel and AMD's market shares because they are the top two in microchips for personal computing. So for every bit Intel slips, AMD will be there to pounce.

My favorite part is that AMD is gearing up strongly in China.

AMD's agreement with Beijing University to let students gain hands-on experience with their x86 Geode processor technology will indubitably sow a future harvest of AMD engineers who come with built-in product knowledge before they ever hit the payrolls.

And this is no sweatshop. It's engineering work that leads to stable and lucrative careers for hundreds of thousands of Chinese every year. Whether AMD gets each and every Beijing University graduate to come work for them is immaterial: AMD is sowing the seeds of future technology.

I still think AMD's placement in the Chinese market is overlooked, keeping the current price below what it would be if the market truly grasped the future value of AMD's eastern inroads.

Pull up the People, Pull up the Profit

In business, certain things have to be considered blessings. I believe that in the corporate world, just as with individuals, we can create blessings for ourselves.

When AMD launched its 50x15 initiative to give computing power to 50% of the world's population, it made a decision to bless everyone.

Now, the United Nations is on board in a big way, showcasing the AMD-powered "100 dollar laptop" at the World Summit on the Information Society in Tunisia.

These small computers will have the capability to access the internet either through traditional networks or through creation of mesh networks (if more than one of these is around but there is no Web connection, there will still be a means for users to communicate with each other).

The portable, green units with rubber casings will be sold to developing countries and aid organizations in lots of 1 million. That's right, computers sold by the million. All with AMD chips.

Quite simply, AMD (along with partners Google, RedHat, Mass. Institute of Technology, and others) are democratizing the future.

The small computers are expected to go into full-scale production within a year, and the leaders of Brazil and Thailand have already voiced their intent to purchase.

Did I mention that these laptops are powered by hand-crank? Soon, you won't even need a socket to be an AMD customer.

The Giant Stumbles

AMD knows that sustaining their rise is aided greatly by their lead in low-cost emerging markets. As the children who use their affordable laptops become the next generation of computer users, AMD will take part in the graduation from baseline goods to the high-end.

Currently, Intel is stuck in neutral at 32-bit technology for its Centrino mobile technology. AMD is running 64 bits on its Turion, which analysts say gives AMD a 2-year development lead.

The worldwide chip market is expected to grow by 8% in 2006, according to industry estimates. That includes mobile technology like the Turion, and AMD's Opteron and Athlon processors will feed new quad-core technology by 2007, enabling server designers to build systems with 16 and 32 processors.

And finally, longtime Intel loyalists Dell are warming to AMD. First, they started selling AMD chips on dell.com this year, and now there are rumblings from Taiwanese Dell manufacturers that they are preparing systems around AMD chipsets. Dell denies the rumors, but would it be so far-fetched?

Expect more such moves in the coming year, as AMD changes the game and uses Intel's bones to bake AMD's bread.

Given continuing conditions for growth in varied market sectors, as well as market optimism that should continue through the holiday season and well into next year, I believe that AMD is still a good buy at current levels and up to a limit of $30 per share.

Sam Hopkins


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