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Are These Semiconductor Companies Good Buys?

April 29, 2014 | About:

The news and numbers reveal that personal computer sales are declining. IDC, a market research firm, reported that PC sales have plunged about 13.9%.

The decline in PC sales seems to have a major effect on the semiconductor manufacturing industry. Advanced Micro Devices, (NASDAQ:AMD) which has lost almost 70% of its value in the last year, published its quarterly results in recent days leaving bears believing that the company is doomed.

Intel (NASDAQ:INTC)'s results also did not give analysts any reason to be happy. In short, the semiconductor industry as a whole looks a bit troubled, but I still believe there are reasons for investors to wait before shorting their investments.

The PC market is an important business for AMD. The company expects to ship more than 300 million PCs annually. Windows 8 has not yet been able to deliver but still remains a possible catalyst for escalating customer interest for touch-based devices. Microsoft is taking customer feedback to develop a more consumer friendly and innovative Windows 8's successor, which should help in boosting PC sales.

Refreshed Processors

AMD started the distribution of its Kabini processor in the first quarter. The Kabini processor is better than the previous AMD APUs in terms of performance and battery life. These processors are under the A-series and E-series of processors, and integrate up to 4 Jaguar x86 cores, a DDR3 memory controller, and HD graphics. AMD is also commencing production of Temash, a line of chips for the tablet and hybrid market.

The company’s strategy under the Never Settle Reloaded campaign to bunch AMD graphics cards to admired game titles has started delivering results. Proceeds from this segment surged 3% to $337 million in the first quarter. Further, AMD seeks to diversify and center sales on embedded and semi-custom processors and graphics processors in the future.

Game It Up

AMD has inked deals to provide Microsoft, Nintendo and Sony chips for their game consoles. It is expected that 40 million game consoles will be shipped, mainly Sony's PS3 and Microsoft's Xbox 360. AMD will be benefit when Sony launches its PS4, as the company is supplying the single-chip integrated APU for the console.

AMD’s improved hold on consoles is nice, and the company is captivating more market share by giving customers free games. The question that still hovers is; how good is it keeping the company’s long-term view?

Amid Competition

NVIDIA (NASDAQ:NVDA) competes with AMD in the graphics space, and is the world's-largest producer of distinct graphics-processing units. The company's new GTX Titan products have been well received in the GPU market, especially in terms of designing . These devices will further strengthen NVIDIA’s position in the gaming market.

NVIDIA’s strong portfolio of patents more or less stabilizes its stream of revenue and positions itself as a leader in the visual computing technology. The company is introducing a new product line labeled, the "GRID." The technology will pilot the virtualization of graphic processing and would lead to separation of the GPU’s from the workstation. The company believes GRID to be a $10 billion opportunity.

While AMD and Intel are trying their luck in the smartphone and tablet markets, NVIDIA already has a solid footing. The company’s Tegra chips were launched in 2009, and since then NVIDIA has come up with other important technologies. NVIDIA also manufactures its Tegra processors for cars, apart from smartphones and tablets. Management projects that the company’s automotive sector will generate $450 million in revenue by 2016.

Intel Inside

Intel is a household name and enjoys a far broader market than AMD in the PC segment. It is also a competitor in the tablet and smartphone SoC market for NVIDIA and is spending heavily on its R&D to have a better position in that segment. Intel will start manufacturing 22 nm mobile chips process node this year, which will give it an edge over other manufacturers.

Intel will become a key supplier of its Haswell chips starting in the current quarter. It is also supplying its Core i5 chips to the Surface Pro tablet. These products should help the company to improve its declining top line. The company’s revenue from data centers saw a 7% rise to $2.6 billion in the most recent quarter.

Moreover, with the increase in tablets and smartphones, more servers will be required to handle the increased traffic. As Intel estimates that it has more than 90% of the global server business market share, the surge in smartphones and tablets should add about $2 billion to the company’s revenue.

Final Words

The gradual shift from PC to tablets and smartphones places NVIDIA in an advantageous position compared to its two competitors. Intel’s foothold is expected to increase in the mobile market and its extensive brand value and dexterous R&D team will help it deliver. Until then, investors can enjoy its high dividend yield of 4.3%.

AMD’s prospects and possibilities are highly dependent on how the PC industry performs and how it benefits from the gaming console market.

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