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Aiming to one up

Intel

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and juice its sagging revenues,

Advanced Micro Devices

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today debuted an advanced-generation lineup of microprocessors at an event long on hype.

The debut took place at a San Francisco theater crawling with computer enthusiasts imported from across the U.S. Some were traveling on free plane tickets they'd won through an AMD-sponsored contest.

Meanwhile, outside the theater, ersatz picketers toting AMD signs shouted, "What do we want? 64-bit computing power! When do we want it? Now!"

But not everybody would agree. On the technology side, some give AMD credit for beating Intel to the market with the 64-bit desktop chip, which processes twice as much data at a time than the standard chip. But chief competitor Intel, for its part, argues that nobody needs that much processing power yet, and some observers are skeptical, too.

Indeed, one of the legions of T-shirted young men roaming the theater, Dennis Geoghegan of Phoenix, said he uses AMD chips in his PC, which he relies on mostly to access the Internet and play games. But he shrugged, "Most of the computer stuff they come out with is like 5% better

than what existed before. You can't even tell the difference."

In any case, while the nerds were out in full force at the event, another group of heavyweights was notably absent: computer makers. AMD announced today that major hardware makers

Hewlett-Packard

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,

TheStreet Recommends

Fujitsu

and

Fujitsu-Siemens

will all be designing the new chip line into their products, but none sent emissaries to the debut -- a sign that the PC vendors have yet to be won over to the Athlon 64, according to some.

"The reason why the PC OEMs weren't there is the price performance of Athlon 64 was not there," says analyst Tai Nguyen at Susquehanna Financial Group. During the launch of the earlier generation Athlon XP a few years ago, he notes,

Compaq

and Fujitsu both sent top executives. But at this point, he says his contacts at PC companies H-P,

IBM

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, Fujitsu-Siemens, and

NEC

(NIPNY)

sound underwhelmed by the chips. When his sources tested the Athlon 64 mainstream desktop 2.0 Gigahertz silicon in a 32-bit environment, it didn't outperform its nearest competitor, Intel's Pentium 4 3.2 Gigahertz chip. In fact, it just barely outperformed the Athlon XP 3200, AMD's existing chip.

To be sure, some analysts have sounded more upbeat about the higher-end Athlon 64 FX, targeted at the gaming market. "The performance of the premium Athlon 64 FX processor in early prereviews looks very good on a range of applications," says U.S. Bancorp Piper Jaffray's Ashok Kumar in a recent note. However, he questions whether AMD will succeed on the marketing front. U.S. Bancorp hasn't done banking for AMD, but an affiliate of its parent company has provided commercial banking to Intel.

In any case, Nguyen says he would have expected to see stronger endorsements today from hardware makers. "AMD is betting its life on this product, and OEMs have been evaluating it for months now. I would expect it to have very strong support out of the gate, that H-P would come out waving a flag." Instead, says Nguyen, "They're clearly muted and cautious." His firm doesn't do investment banking.

During the presentation, CEO Hector Ruiz touted the backing of

Microsoft

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, which has said it will roll out a 64-bit version of Windows in the first quarter of 2004. But in an odd reference possibly referring to the absence of hardware vendors, he added, "Frankly, others have been intimidated out of joining us today."

AMD's Big Plunge

Meanwhile, Wall Street is skeptical about whether the new line of silicon will translate to the bottom line and stem the flow of red ink any time soon. After eight straight quarters of losses, AMD has relatively few defenders. So the burden is on the company to prove that there's sufficient demand for its Athlon 64 family and -- even more of a concern -- that it can profitably manufacture the complicated new version of the silicon.

Expectations are high: Shares of AMD have shot up 97% since their near-term lows in early June. The company has been helped along by upbeat sentiment over today's desktop-chip launch and last month's positive take in

Barron's

(which noted that Fred Hickey of the

High-Tech Strategist

, an influential newsletter, had turned bullish on the stock). AMD shares closed down 4 cents, or 0.3%, to $12.38 in trading Tuesday.

Yet some buy-siders exhibit an almost reflexive disdain for the company's turnaround prospect. Grumbles one tech fund manager, "For investors who've been around for a while, this is one you get burned on every time. And if it's not every time, it's every other time."

Lately, there's no arguing that AMD shares have lately made a tidy profit for some investors. At JMP Securities, analyst Krishna Shankar notes AMD has almost doubled since he upgraded the stock about six months ago.

He thinks the Athlon 64 family could give a further lift to AMD's stock price as it starts to factor into AMD's P&L by the first half of next year. With the mainstream desktop chip costing $417 and the higher-end graphics chip at $733, the Athlon 64 will retail well above the company's existing silicon, priced at between $50 and around $300.

Some market watchers have questioned whether PC users will be able to take advantage of the 64-bit capabilities of the new chip, since the vast majority of software is geared to the 32-bit computing environment. But Shankar shrugs off such worries, saying the software will start to appear as prices fall. Microsoft's backing is "an important vote of confidence," he notes.

Assuming the Athlon 64 gains traction and that AMD makes inroads with its Opteron server chip as well, Shankar thinks AMD could earn a profit of 20 cents next year. That could give a push to AMD shares, which he doesn't expect to show much upside in the near term.

Yet Shankar is far more bullish than the rest of Wall Street; on average, analysts are gearing for a 28-cent per-share loss for AMD in 2004.

And apart from the demand side, AMD-watchers are fretting over a swath of other concerns related to supply of the chips.

Among them: The Athlon 64 chip is physically twice as big as the Athlon XP that it replaces, reflecting its ability to work with both 32-bit and 64-bit applications. For that reason, the chip reduces manufacturing capacity by about 60% and costs nearly twice as much to make as the existing line of silicon, notes Kumar. He thinks the Athlon 64 could have negative operating margins.

There's another problem related to the larger chip size, notes Manoj Nadkarni of Chipinvestor.com, which offers independent research on semiconductor stocks. Not only do they reduce productivity, he says, "But on top of that, when chip size is bigger, you are more prone to attract defects so your percent yield also goes down. It's like a double whammy. For AMD now the challenge is not as much on the demand side as on supply side," he contends.

Nadkarni, who once worked at AMD in the mid-1980s, thinks the silicon will show a performance advantage over Intel's 32-bit offerings. But he refrains from recommending AMD shares, saying the company's weak balance sheet turns him off.

One final sticking point: Analysts say that the current structure of the Athlon 64 requires potential PC customers to redesign their computer motherboards before they can use the silicon. "That translates to additional costs, so that's also going to

create some hesitation on the part of PC OEMs to support the Athlon 64," says Nguyen.