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Semiconductor Stocks

Written By Brian Hicks

Posted January 21, 2008

When you wish upon a falling knife, hopefully you won’t get cut. Recent stock market movement has pushed share prices of a gang of companies straight through support levels, and the best news is really just not-so-bad news.

Consider Advanced Micro Devices (NYSE:AMD). I recommended this Californian semiconductor maker in Wealth Daily over two years ago, when the company was gaining on giant rival Intel (NYSE:INTC). AMD had cemented an innovation strategy that made heavy use of cooperation with institutions like China’s Peking University and involvement in the ambitious One Laptop Per Child program to deliver computers to poor children in developing countries.

Then AMD sputtered, and Intel reasserted its dominance over the microchip sector with hot new deals with Apple and new momentum in emerging markets.

We pulled a 74% gain on AMD before it topped out in February 2006. Since that time its share price has dropped from over $40 to just over $5.50. Ouch.

But on January 9, AMD started to pull up. It’s added almost 25% in short-term upside in just under two weeks. What happened? It’s all relative with these two companies, as with the broader market at the start of 2008.

AMD and Intel

AMD shareholders smiled a little when they saw Intel gap down 12% on Wednesday, January 16, if only because of the schadenfreude of seeing your enemy stumble. Intel’s fourth-quarter profit hit 38 cents per share versus 26 CPS the year before. That’s great, right? Not if you know how Wall Street expectations work. The consensus among analysts polled by Thomson Financial was that Intel should report 40 cents per share, and the gap between forecast and reality led these soothsayers to draw some dire conclusions about the sector.

Retail sales are off, the market is now turning towards a legitimately bearish 20% drop, and industry watchers see demand for microprocessors falling hard in the coming months (or years).

AMD investors didn’t just smile a little on Wednesday when Intel’s disappointing earnings came out. They smiled a lot when the afternoon brought a 9% jump in AMD shares as INTC shareholders flocked to the underdog.

Then AMD picked up some more steam Thursday on their quarterly earnings announcement. Again, market psychology is huge here.

AMD shares have been heaped onto dump trucks and taken to the landfill over the past year. The departure of the company’s chief marketing officer during the launch period of AMD’s quad-core Barcelona chip, which was supposed to re-establish competitive advantage over Intel and get the company back on track, was highly disturbing.

So Thursday, analysts braced for the worst, expecting a 36 CPS loss. Instead, they got a loss of 17 cents per share.

Hooray, I guess? AMD shares popped again by double-digits as of midday on Friday, showing that we are truly scraping the bottom of the barrel for market optimism.

AMD and Intel show that there is still room to play this market for big gains in a short time period (in Intel’s case, by shorting the stock).

The question is whether anyone wants to go long on anything in technology in ’08.


Sam Hopkins