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Friday, July 07, 2006

Intel: King Of The Hill Again

Stocks: (INTC)(AMD)

Word came yesterday that Advanced Micro Devices would have a poor second quarter. Revenue is expected to be 9% lower that Q1 and the stock will be undoubtedly flogged. Prudential and UBS reacted by slashing expectations./

The story not in the headlines is that Intel has dropped prices and is forcing the smaller AMD into a war it cannot win. A war of attrition. AMD's problems are futher compounded by Intel's introduction of new, power-saving chips that will come out in the third and fourth quarters of this year. These dual core products will be designed for both PCs and laptops and should take share from AMD as they are introduced.

According to several news reports, AMD's share of PC and laprtop processors reached 21.4% of all CPUs globally in the fourth quarter of 2005. This was up from 17.7% in the third quarter and 16.9% in the first quarter.

The assumption from AMD's gains was that Intel had lost its edge and that its share would drop to 70% or less.

Intel's stock reacted to the expectations. The stock has gone from a 52-week high of nearly $29 to the current price below $19.

Wall Street will undoubtedly view the AMD news as bad for both that company and Intel because it indicates that price cuts will hurt each company's margins. But, this would be taking a short-term view. Intel, with its much larger sales of about $39 billion and its strong balance sheet can out-gun AMD, which has sales under $6 billion, in a fight for share in the PC, laptop and server businesses.

AMD was viewed as the darling of the chip business as its stock rose from just above $18 a year ago to nearly $43 in January while Intel's shares collapsed.

Now, the shoe is on the other foot.

Douglas A. McIntyre can be reached at He does not own securities in companies he writes about.

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