AMD's "Kick Down" A Signal For Rest Of Chip Stocks?


Just when you thought it couldn't get any worse for Advanced Micro Devices , Banc of America kicks the company when it's down, right in the teeth. And the report is sending a shudder through all of big-cap chip stocks.

AMD lost 62 percent of its value last year and despite such a steep sell-off, it's still not a good deal, says Sumit Dhanda, Banc of America's chip analyst. That's brutal. These shares are hanging on to the $7 a share level by a thread, threatening to dip into the $6 range. These are levels this stock hasn't seen in almost 4 years, with the report this morning slapping a new, $5 target on AMD. And the company now commands a "sell" rating by the firm. Ouch.

This is particularly disheartening since AMD poured so much attention into its next-generation Barcelona technology. I talked with the company's CEO Hector Ruiz at the chip's release and he was extremely excited about the prospects.

He acknowledged his frustration surrounding the chip's long-running delay but said at the time that the time for pointing fingers had passed; that the company was focused instead on getting this technology into the marketplace. Well, now it's finally there and the company is still getting slammed.

Thank Intel for much of these problems. The company was able to capitalize on AMD's ongoing problems, but it too suffered a BofA downgrade this morning. In fact, AMD and Intel joined National Semiconductor, Texas Instruments,LSI Logic,Analog Devices,Power Integrations and Semtech in the downgrade parade.


But before jumping to the conclusion that the chip sector--and maybe all of tech--is due for an overall correction, keep in mind that trends that began to blossom in 2007, and understand that many of those trends should continue humming along in 2008. I don't believe that AMD's problems are necessarily Intel's problems. AMD's issues come from the company's inability to execute; the company's inability to keep costs in line; the company's inability to capture the market's imagination with new, compelling technology that inspires new innovation.

That is not the case at Intel. We're in the midst of the Microsoft Vista upgrade cycle; Intel's overseas customers continue to buy more microprocessors, and the company's Quad-Core initiatives are gaining a strong foothold in the marketplace.

To torpedo Intel because AMD can't get its act together might offer up a nice opportunity for investors. Banc of America talks of "seasonality" and first-half weakness. In other words, we know about softness. We expect it. The back half of 2008 seems strong. I think a sell-off today is premature at best.

The outlook at Texas Instruments may not be so cut and dry, but wow, the fundamentals here seem intriguing. Wireless continues to soar; the world continues to go mobile; we'll see whether DLP televisions sold as well as some people think during the holiday shopping season, and the company's outlook for 2008 seems optimistic.

TI is well off its July high where it nearly touched $40 a share. With the big Consumer Electronics Show kicking off in Vegas this Sunday, where a general euphoria descends upon big name tech stars, weakness here could be an opportunity to get in.

I think a lot of these names still have a ways to go. Most suffer first quarter slowness; and then we see some doldrums in the summer time before business starts picking up in the third and fourth quarters. Chips have always been a cyclical business. It's just that I don't think the doldrums will be nearly as bad this time around. And the upside, in some of these bigger names, seems far better than it had.

Questions? Comments?