Earlier today, Vijay Rakesh, an analyst with Sterne Agee, cut his rating on AMD to Neutral from Buy, based on suggestions that PC manufacturers were being generally cautious about sales over the next couple of quarters. Rakesh notes that Trinity is tracking far more design wins than Llano did at this point last year, but believes sales will slow ahead of the Windows 8 launch, writing that "OEMs cautious on back to school. We believe overall SepQ builds could be lighter than the seasonal 10-15% q/q, with a pickup late in the quarter for Win8."
Digging into this a bit more, there's evidence of a bit of a battle between analysts as far as AMD is concerned. Cody Acree, of Williams Financial Group, dismissed Rakesh's move, writing that "We believe one anecdotal point of evidence of the competitive impact AMD is having is that Intel looks to have been forced to reduce the prices of its Core i3 products to the mid- $20s in an effort to stave off AMD share gains with Brazos 2.0. Even at price parity we believe AMD has the competitive advantage over INTC with AMD’s much stronger graphics performance."
So which analyst is likely right? Both -- and neither.
Breaking Out The Crystal Ball
A slow sales quarter is much more likely to hurt AMD than Intel. Intel's strong market share in the workstation/server market and its immense gross margin (65-67% in recent years) effectively insulate the company from any downturn in consumer spending. AMD isn't buffered to nearly the same degree; a net profit of $100M is a solid quarter for Sunnyvale. As a result, it doesn't take much rocking for AMD's boat to take on water. From that angle, Rakesh could have a point. Even if Trinity is driving a lot of OEM interest and adoption, sales of Trinity systems are only just ramping and it'll be a quarter or two before the next-generation of 32nm products accounts for a majority of Sunnyvale's shipments.
We wouldn't be surprised to see Trinity ramping much more quickly than Llano, given the manufacturing problems that dogged that CPU, but we're cautious about the Core i3 price cuts Cody Acree points to as a reason to be optimistic. As far as CPU performance is concerned, Trinity quad-cores struggle to compete with Intel dual-cores -- in a head-to-head dual-core CPU competition, the Core i3 will almost certainly win. AMD's graphics performance remains stronger than Intel's, but Intel's Ivy Bridge took a substantial step towards "good enough" territory this past year. Brazos, meanwhile, competes with Atom, not
Core i3. Statements like this are what create the impression among IT journalists that enthusiasts need to brush up on their technical skills.
Headed into Q2, we expect decent results from AMD, with the GPU business barely on this side of profitability and the CPU side modestly buoyed by Trinity. Barring any major problems, the company should end the quarter in the black. Going forward, we expect AMD will push Trinity as a cheaper ultrabook alternative at lower price points, effectively ceding the high end of that market to Intel. If AMD can field Kabini and Kaveri in the first half of 2013, it could capitalize on Windows 8 and build effective momentum around a tablet strategy. If not, it risks being pushed out of that space by 22nm Atom products and Win RT tablets built with solutions from Nvidia and Qualcomm.