Cash in Your Chips: AMD, Intel Poised for Growth

Thursday, 14 Apr 2011 03:22 PM

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When the global economy improves, so does the technology sector. That's good news for makers of semiconductor chips, such as AMD (AMD) and Intel (INTC), the two companies that supply the equipment that makes computers run.

In 2010, PC microprocessor unit shipments grew 17.1 percent, while revenue increased 26.7 percent to $36.3 billion, according to the IDC, a technology research consultancy.

"It's clear that the ongoing shift to mobile processors, combined with a shift back towards high-performance mobile processors ... drove a significant rise in overall processor average selling prices," notes IDC analyst Shane Rau.

The beauty of the microchip industry is that it's hard for competitors to break into it, thanks to tough capital requirements and the complexities of developing the technology. That means Intel should continue to dominate, with AMD holding on to its second-place spot.

Both companies are working hard to keep up with the demands of changing technology and markets.

Analysts are taking note. Standpoint Research recently upgraded Intel to buy from hold, while Robert W. Baird upgraded the company to outperform from neutral.

AMD, meanwhile, was recently upgraded to buy from neutral by Sterne Agee. Longbow recently initiated coverage at buy.

The company is looking forward to 2011 with optimism. "I am confident we can drive profitable growth based on the strength of new products we will bring to market," says company CFO and Interim CEO Thomas Seifert, in a statement.

Intel is also optimistic about 2011. "We expect a 2011 revenue growth percentage in the mid- to high-teens," the company says in its 2010 annual report.

Intel predicts its gross margin percentage will finish 2011 at 63 percent, which would be slightly lower compared to 2010's gross margin of 65.3 percent, "primarily due to higher manufacturing period costs, mostly start-up costs, as well as the impacts of the recently completed acquisitions. . . . We expect these decreases to be partially offset by lower platform unit cost and higher platform revenue."

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