As industry thrives, AMD will struggle, firm says
Although the microprocessor (MPU) industry can look forward to a strong performance in the coming months, the struggles for Advanced Micro Devices Inc. (AMD) are not about to let up anytime soon, one firm believes.
In a research note released today, Wall Street watching investment firm Lehman Brothers once again lowered its earnings per share (EPS) estimates for AMD, due to what it said was "fierce competition" from market-leading rival Intel Corp.
For the industry as a whole, however, the outlook is much brighter. Lehman said that new multicore processor launches and "steadily improving traction" in the consumer market for Microsoft's Vista operating system should lift growth in the second half of 2007 and in 2008. The firm said the MPU market is set to grow at a rate of 9 percent year-over-year in 2007 and 12 percent in 2008, after just 6 percent growth in 2006.
Meanwhile, 2007 is set to have a rocky start. The firm forecasted the semiconductor industry will suffer from "continued challenges associated with heightened competition, increased industry capacity, elevated inventory levels and margin pressures, reflecting both pricing and 45-nm/65-nm ramps" along with "mixed consumer demand" throughout the first half of 2007.
Longtime market leader Intel is now firmly back on top, Lehman said. Intel has made a strong comeback after ceding market share to AMD in the second half of 2006, thanks in large part to a broad restructuring it undertook last year. For Q2, Lehman has upped its Intel EPS estimate to 23 cents in anticipation of successful product launches, notably its upcoming next-generation Centrino platform codenamed "Santa Rosa." Intel's stock is already showing signs of strength, opening this morning at $23.37, just 3 percent down from its 52-week high of $24.18.
Things are not nearly as sunny at AMD, where shares of the company were trading this morning at $14.60, worlds away from the company's 52-week high of $42.70. Although it may be hard to imagine the company's stock price dipping any lower, Lehman predicts that AMD's shareholders are indeed set for even more disappointment in the coming months. In its report, Lehman said competition from Intel, inventory issues and "potential challenges" integrating ATI, which AMD bought last fall in a headline-grabbing $5.4 billion deal, may suggest major risks in the near term that lead to the firm's even further declining EPS estimate.
Lehman said it now expects AMD to lose 19 cents per share in 2007 overall, and 20 cent per share in Q1—adding on to its significant plunge its stock price took on AMD's dismal Q4 earnings report. However, the investment firm did say that AMD has "potential" as a share gainer in the long term.