A Chip on His Shoulder
A tough sell. In the meantime, AMD is continuing to put pressure on Intel in the marketplace. Last week, it announced faster models of the dual-processor Opteron, on the same day Dell announced it would ship the first servers with Intel's yet-to-be-released version of its own dual-core processor later this year.
But even with the edge AMD continues to have over Intel in certain critical technological areas, Wall Street remains skeptical about AMD. Earlier this month, Merrill Lynch analyst Joseph Osha downgraded its stock and upgraded Intel's because, in spite of AMD's recent gains in the server market, Intel's increased pressure is likely to have an effect on AMD in the next year. JPM organ analyst Christopher Danely recently reiterated an "underweight" rating on AMD stock. "In spite of the upside, we remain concerned with the company's historically spotty execution, increasing operating expenses, increasing inventory, and the potential for processor overcapacity in 2006," Danely says. But AMD investors should be more pleased than Intel stockholders. During the past six months, AMD's stock has shot up nearly 50 percent while Intel's price has gained less than 10 percent.
The overcapacity question stems from the opening of a new manufacturing plant in Dresden, Germany, which will sharply increase AMD's chip production. The new facility will provide a welcome relief from AMD's current plant, which is maxed out, but the company does not currently have enough orders to use both facilities at maximum capacity.
Wall Street is also worried about the pending spinoff of AMD's Spansion business, which manufactures flash memory products mostly for mobile devices such as cellphones and digital cameras. AMD owns 60 percent of Spansion in partnership with Fujitsu, and it filed papers with the Securities and Exchange Commission for an initial public offering back in April. A slowdown in the flash business put a damper on its prospects for investors, and the spinoff remains in limbo. The division represents 40 percent of AMD's total sales, but its costs have become a drain on the company's income statement. In the second quarter, AMD eked out a small profit that would have been substantially bigger were it not for the Spansion unit, which lost $90 million.
But mostly AMD can't seem to shake off its history. The company was embroiled in litigation with Intel through the late 1980s. Each technological advancement AMD made was matched or surpassed by Intel in little time. "Because of AMD's past inconsistent performance, many analysts have been burned," says Brookwood. "Some see [AMD's current success] as a streak of good luck and eventually the natural order of the universe will return." But don't tell that to Ruiz. "It's irreversible," he says of AMD's recent progress. "We've been able to make inroads, and we've forced our competition to follow suit. There has been a huge change."
Perhaps, but as Lance Armstrong knows well, the competitor with the yellow jersey on in the middle of the race won't necessarily win.
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