Amd's Stock Price example essay topic

Advanced Micro Devices (traded on NYSE under AMD), the world's second largest producer of microprocessors, has historically lagged behind the giant Intel, which commands about four-fifths of the international microchip market. After two decades of being the best-grounded and sure-footed company in Silicon Valley, Intel is having serious financial and strategic trouble. The company has called off a succession of high-profile projects, replaced its top management in money-losing ventures and is behind AMD in introducing new demanded technology including anti-virus and worm-fighting products. For what the New York Times predicts to be the most expensive holiday party of the year, Intel's engineers have, ironically, assembled a disco ball for a corporate get-together made entirely out of leftover projection-television chips as the company cancelled plans to enter the digital television market after a flamboyant introduction just ten months prior. After suffering from a 25 percent decline in stock price this year, Intel's new designated CEO Paul S. Otellini must gain the support of Wall Street, convincing analysts that the company is on a path to recovery. Intel plans to revise its tactics and expand its range of products, looking to start putting out complete computer systems after decades of just producing the chips.

While the Intel turmoil is ensuing, however, AMD has a genuinely unique opportunity to seize some of its giant competitor's significant market share. AMD's high-performance Athlon and Opt itron chip families, for instance, are designed to compete directly with Intel's long-trusted microprocessors in both the computing and consumer electronics markets. In fact, AMD's eighth-generation 64-bit processors, code named "Hammer", introduced more than a year ago, are currently the chip of choice to operate the massive servers of the likes of Hewlett-Packard, IBM and Sun Microsystems. In fact, the Fortune 500 companies from all industries including financial services, insurance, manufacturing, automotive, and energy select systems based on AMD Opteron technology to run their critical enterprise applications. Furthermore, Advanced Micro Devices sees much promise in the possibility of teaming up with Dell, as announced by Dell's President Kevin B. Rollings at a recent financial conference call. Dell, which has successfully outperformed its sector, is planning to add a number of personal computer lines based on AMD technology, even though this ever-growing computer maker has notoriously employed Intel chips throughout its operational history.

Dell's shift, caused largely by Intel's prolonged predicaments, symbolizes a window of unprecedented opportunity for Advanced Micro Devices, which has been aiming to overhaul Intel's dominance throughout its thirty-year existence. Though Intel has a solid reputation for producing quality semiconductors-whether the Pentium, Celeron or Centrino lines-AMD stands a strong chance of taking over some market share in the future by employing aggressive marketing and pricing strategies, providing that Intel's recovery proves to be time-consuming and, most importantly, if AMD's commitment to quality improves. In trying to compete with Intel, however, AMD has sometimes been significantly destructive to its own brand image and status. Suffering from design flaws, various manufacturing glitches and a lack of production capacity, Advanced Micro Devices has created somewhat of a general public apprehension towards its products. Following four years of consecutive net losses, AMD performed exceptionally well in the year 2000, earning $983.1 million, with its stock price reaching an unprecedented $48.50 per share on June 9, 2000. The following year, however, AMD experienced a rough patch as the global chip industry declined.

The company resolved to massive layoffs and plant closures in an attempt to return to profitability. After losing $60.6 million and an unprecedented $1.3 billion in the years 2001 and 2002, respectively, the company undertook a 15% cut of its work force in hopes of coming out of the red the following year. Though the 2003 financial results are less troubling that the alarming figures from 2002, AMD posted a net loss of $274.5 million last year as its extensive measures to avoid losses clearly failed. Burdened by a long term-debt of over $1.899 billion, Advanced Micro Devices must primarily concentrate on improving the overall quality of its products to take in any significant earnings.

In addition, the company ought to improve its marketing campaign, which cost $148 million in 2003. The computer chip maker should employ the tactics similar to those of Intel to increase brand-name recognition and trust, thus making consumers more likely to buy a computer system that carries AMD technology. Though 56 percent of AMD's operations revolve around the production of microprocessors, the company is a sound player in memory and networking products. In fact, AMD is leading Samsung and even Intel in the production of flash memory chips, essential components of a range of electronic devices including cell phones and digital cameras, with 2003 sales of $1.41 billion. A relatively insignificant source of income stems from AMD's manufacturing of embedded processors, used in disk drives, and network chips like Ethernet controllers and physical layer devices. With a market capitalization of $8.303 billion, AMD is expected to yield a 64.8% growth in revenue this year.

According to the market research firm IDC, in fact, AMD dominated 10% of third-quarter computer chip sales, the highest level the company has seen in three years. The 3-year growth in company revenues is predicted to revolve around 5.3%, while the rate of 5-year growth should equal 4.4%. AMD's stock price hit a low of $10.76 in August of this year, but has been steadily increasing, closing at a 52-week high of $22.62 per share on December 2. The company has, therefore, exceeded the analysts' expectations, who predicted the price would merely break the $22 mark in November and would begin its decline to about $21 a share, where it was expected to remain through much of 2005. As of December 2, the company stock is trailing behind Intel-currently traded at $22.71-by a mere 9 cents a share. In fact, AMD stock was upgraded from sell to hold by Smith Barney Citigroup as recently as November 16, 2004.

While Intel carries out its long-term transformation, Advanced Micro Devices has a rare chance to increase its market presence by employing an aggressive pricing strategy, adopting better quality standards, increasing production and expanding its marketing campaign. It has been on a solid financial streak as of late, with its stock having the potential to outperform Intel. Despite an unhealthy Price-to-Earnings multiple of 49.20 and the most recent quarterly earnings report slightly lower than expected, the company is expected to outperform the market over the next six months with average risk, according to analysts. Though it's doubtful AMD will take over Intel's position as the primary microprocessor chip manufacturer in the foreseeable future, it is mostly clear that Advanced Micro Devices will perform quite well and post positive net earnings for 2004.

The company has the right potential to be a dominant force in the global computer chip market, providing that the management takes the right direction over the next few years.