Firm sees short-term strength for Intel, long-term success for AMD

By Colleen Taylor -- Electronic News, 1/8/2007

Wall Street watcher Lehman Brothers has updated its outlook on rival MPU makers Intel Corp. and Advanced Micro Devices Inc. (AMD), which are set to announce Q4 financial results in mid-January.

The firm projects industry leader Intel's sales and earnings to be broadly in line with its previous guidance, encouraged, it said, by new products, cost reduction and potential for more quad-core announcements at this week's Consumer Electronics Show. Looking into Q1, however, Lehman said that lingering desktop inventory issues and seasonal softness may temper revenues, and tweaked its sales estimate to dip four percent lower than Q4 sales.

More good news for Intel could soon be on the way, Lehman said, adding that dual core partnership announcements with Apple could be on deck for later this week. In addition, Intel could be mulling over a sale of its $2 billion NOR Flash business, the firm said.

However, Intel should not become too comfortable at the top. Looking ahead, Lehman said it expects ongoing share pressure from long-time Lehman favorite AMD, notably in the second half of 2007, in notebooks, desktops and servers. While the short-term looks stellar for Intel, Lehman said it maintained a "cautious long-term outlook" for the chipmaker.

As for AMD, Lehman has adjusted its estimates for Q4 and the first half of 2007 lower than they had previously been, trimming its gross margin estimates to 48 percent from 49 percent while maintaining its $1.83 billion revenues estimate. However, looking further ahead into the second half of 2007, Lehman said it expects AMD to grow at double MPU industry rates with ongoing share traction in notebooks, desktops and servers.

"Looking ahead, we expect OEMs to continue to embrace AMD's offerings, and we look for monolithic quad core server rollout in Q2 as well as new mobile offerings to bolster its positioning," Lehman said today in a note to journalists.  "Ramping 65nm capacity should also help support the channel where AMD has seen some issues and drive sales growth… While we anticipate some near term pressure, we retain our constructive longer term view as AMD expands its position in the MPU market."