Semiconductor Roundup

Intel delivers 10nm while AMD is upgraded on the sell side. Micron gets serious boost

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May 17, 2018
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Intel’s first 10nm processor has been finally spotted in a Lenovo notebook, Ideapad 330. Intel shipped a rather, unappealing, dual core CPU named 8th-gen i3-8121U with a base clock of 2.2 GHz. The new 10nm Core i3 operates at the same TDP (15 watts) as its predecessor i3-8130U. What’s interesting is that Intel has disabled chips’ integrated graphics, as evidenced from the presence of a discrete graphics chip from Advanced Micro Devices in the entry-level Lenovo device.

This launch, however, should not be confused with Intel’s ability to mass produce 10nm parts at decent yields. The company is still struggling to improve yields as it delayed the 10nm ramp up until some point in 2019. Nonetheless, the delievery of 10nm is in line with Intel’s earnings conference comments. Company comments revealed that it plans to ship Cannon Lake in small quantities. .

The debut of 10nm on the low-end indicates that either the company is treading safe waters before the full fledge launch, or there might be some challenges at higher clock speeds. At this point, there's only speculation. However, this can clear the way for Intel to launch the high-end 10nm chips going forward, especially as the company is playing catch-up with Samsung (SSNLF, Financial) and Taiwan Semiconductors (TSM, Financial) in the race for process technology domination.

Advanced Micro Devices

In related developments, Susquehanna analyst Christopher Rolland upgraded AMD from Negative to Neutral on Wednesday, citing Intel’s process technology delays. The analyst thinks that Advanced Micro Devices has a window of opportunity to gain market share based on its revamped Ryzen and EPYC processors going forward. “A more competitive process technology may increase the likelihood of share gains versus Intel over the next few years, a potential game changer,” wrote the analyst in a note to investors.

Also, JPMorgan Chase & Co. (JPM) has recently purchased a call option on Advanced Micro Devices with a June strike price of $13. Shawn Quigg, derivative strategist at JPMorgan, is basing the bullish call on AMD’s historical stock performance after the consensus blockchain technology summit. As the summit kicked off on Monday, a rally could follow, the strategist believes.

Overall, analysts are warming up to the idea that AMD might be serious threat to Intel’s market share going forward, and delays are not helping Intel’s case.

MicronÂ

Micron got some serious upgrades recently. RBC analyst, Amit Daryanani, initiated Micron on Wednesday with an astonishing $80 price target, which translates into an upside of 45% over today's closing price.

The analyst argues that the memory cycles will be muted and less volatile going forward, and Micron is uniquely positioned to benefit from the changing industry dynamic. His thesis is basically based on the consolidation of the industry and proliferation of data centers and connected devices. It is important to note that there are only three memory markers in the market now as compared to 15 in 1995. Moreover, personal computers do not make up the majority of memory revenues now. In 2007, the PC industry represented about 42 percent of the memory market versus 16 percent today, according to Daryanani. On the buy side, David Tepper (Trades, Portfolio)’s Appaloosa management, increased its stake of Micron by 27% during the first quarter of 2018 (35.41 million shares in Q1, up from 27.5M in Q4).

It seems that analysts are finally letting go of the fear of cyclicality associated with Micron’s business. Despite recent bullishness, the stock is trading at a cheap relative valuation. Even if Micron reaches the $80 price target set by RBC, it would trade at just eight times 2019 earnings consensus. In short, Micron is a no-brainer. It is one of the best value stocks in the technology sector right now.

Disclosure: I have no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.