Intel, AMD Don't See Demand Falling Off Cliff

At Inteland Advanced Micro Devices, which together own the market for computer microprocessors, their chief executives had one message for investors this week: "What, me worry?"

Wall Street may be listening. Investors pushed AMD shares up 12 percent to $7.10 Friday, a day after the chipmaker posted better-than-expected quarterly results. Intel , which reported disappointing results on Tuesday, rose as high as $19.65, up 1.7 percent, before easing to $19.33.

Intel Core 2 Duo Processor
Intel Core 2 Duo Processor

Before Friday's gains, AMD shares had lost more than 18 percent so far this year, while Intel had shed more than 15 percent, hammered by concerns of a possible U.S. recession.

Both stocks underperformed the Nasdaq and the Standard & Poor's 500 indexes, which were both down about 10 percent.

Analysts say concern about the two chipmakers may be overdone. For one thing, Intel garners some 75 percent of its revenue outside the United States, and two-thirds of all personal computers are sold abroad.

"U.S. macroeconomic concerns are being overly emphasized," wrote FTN Midwest Securities analyst JoAnne Feeney, adding that Intel is creating new markets for its processors that lay the groundwork for future growth. It also continues to trim expenses and sees another $1 billion in savings in 2008.

Intel is not seeing order cancellations, and inventories are low, Feeney wrote, noting that European sales rose 22 percent in the fourth quarter from the third period, and that strength has persisted so far this year.

Intel's own forecast for the current quarter calls for a revenue decline of about 9 percent, compared with an average seasonal dip of 7 percent.

AMD's first-quarter revenue has been falling in line with historical norms, as opposed to an economy-driven downward acceleration.

"We're still talking about significantly strong and healthy growth" even if it slows to about 8 percent from 10 percent or more in emerging markets, AMD CEO Hector Ruiz said on a Thursday conference call, referring to markets such as Eastern Europe, China, the Middle East and Africa.

For his part, Intel CEO Paul Otellini, who is leading a drive to put Intel's processors into a wider array of consumer gadgets as its mainstay PC market matures, said he had seen no appreciable drop-off so far in the first quarter.

"You hear all of the pundits saying that the world is going to go to a trash basket and you worry," Otellini said on Intel's earnings conference call Tuesday. "At this point we don't see anything on the horizon."

Valuations Near Troughs

U.S. stocks tumbled earlier this week following poor retail sales data, dismal bank results and growing signs that the economy may be on the brink of recession.

Shares of Intel are trading at or near historical troughs on most valuation measures, however, "We would not be aggressive buyers here," wrote Caris & Co. analyst Daniel Berenbaum in a note to clients following Intel's report.

That said, however, "Intel's competitive position is strong, costs are under control and the PC market could still eke out some growth this year," the analyst wrote.

Michael Splinter, CEO of Applied Materials, the biggest maker of equipment used to produce microchips, said in an interview on Thursday that he was heartened to see top customer Intel planning to boost capital spending this year.

"What it means is they have confidence to continue to invest in infrastructure and major factories," said Splinter, who came to the top post at Applied after serving as an executive at Intel for nearly 20 years.

For AMD, 2008 augurs to be a vast improvement over 2007, when the chipmaker's average selling prices for its chips cratered amid a stiff price war with Intel, analysts said.

AMD said it was on track to break even on an operating basis at the end of the second quarter and turn an operating profit for the third.