Update: In rebuttal, Dan Niles of AlphaOne Capital Management, who was short AMD shares all last year, but recently went long the stock, tells me in a phone call today “If they’re saying the valuation is too high, that’s a bet I’ll take every time” because rising estimates will tend to lift the stock.
On a deeper level, Niles argues that AMD is a company once thought to go bankrupt, and the company’s major problem a year ago was the delay it suffered in getting chips out the door with partner GlobalFoundries. Now that AMD has switched to Taiwan Semiconductor Manufacturing (TSM) for most of its production, “they’ve got the A Team” in chip production, ensuring a smoother ramp.
If the company is being designed into gaming consoles, that’s a six-year cycle of steady revenue, observes Niles. He agrees that the PC market is bad place to be, but notes that AMD has been more realistic than Intel (INTC).
“AMD has said they expect 1% to 2% decline in PC [unit] shipments this year, whereas Intel is still arguing things are going to turn around, which I don’t think they are.”
If the gaming market starts to boost revenue above current expectations, it will likely lead to leverage in manufacturing and operating expenses, Niles argues, which could mean profit comes out higher than the 15-cent loss Covello is modeling for this year and the 20 cents profit he models next year.
Goldman's recommendations run about 50-50, but their hits are bigger than their misses, even when taken relative to the S&P 500, so in terms of ROI you're significantly better following Goldman than the index, even though you may book a few more losers than winners.
All Goldman did was repeat what I've been saying ever since this run started in January: there's no hope that gaming consoles will make up for AMD's losses elsewhere.
Niles has been guressing wrong about the semiconductor industry for over 20 years; he has been in hiding for most of the last 13 due to his guilt over the internet boom.
GF delays weren't AMD's problem. GF used to _be_ AMD. Nobody was more aligned with AMD's development processes. AMD's problem was AMD's lousy chips.
Gaming consoles are not a "six year cycle of steady revenue". It's a short, sharp hit of revenue at the front, and six years of exponential declines. And the peak is shorter because the consoles are not better than PC competition, and the slope will be steeper because everyone but the closed-source manufacturers will be refreshing and upgrading on way less than a six-year cycle. Microsoft has itself hinted that it will open up its platform for other chips sooner rather than later. AMD can lose that on the first turn.
AMD underestimated the decline in its PC business. Goldman has exposed that. Intel may be wrong about an increase, but AMD is totally wrong about its decrease being small digits.
So Niles can go back into his hole for another decade. All he's doing here is hurting investors.
Not a 6 year cycle of revenue? So far this year alone, in 5 months, PS3 and Xbox have combined new unit sales of over 4 million consoles. And that is with people knowing that new systems are on the horizon.
Black Friday 2012 saw 1.5 million consoles fly off the shelves, in ONE DAY.
Yes, game consoles absolutely are a 6 year cycle of revenue.
You don't know anything about consoles. Consoles are usually a loss due to the hit taken from selling hardware, because no one wants to pay $1000 dollars for a console. The revenue is usually made back from software licensing and sales later on.
I knew you were full of #$%$.
One thing for sure, Dan clearly understands technology and the trading markets WAY MORE than you ever will, he is intelligent and you obviously are not. With Dan, you get some clarity and TRUTH, but with you, it's just a bunch ridiculous typical ybf garbage nonsense! So, nothing new about that, the usual wannabe. All anyone has to do is just read the load of B.S. you just posted.
Niles was spot on shorting AMD all last year and he has made the correct call going long based on all the improvements and product pipeline to date. Even GS is raising their estimates but at the same time downgrading the stock. Makes no sense.