Tuesday, March 27, 2007

Calls of Note Part 2

- TWP notes today's CPU environment is a difficult one, particularly with the aggressive ongoing price cuts between Intel (NASDAQ:INTC) and AMD. The firm is incrementally more positive on Intel, however, given their findings regarding its long-term server road map, and particularly the Thurley platform. They believe that the dramatic change in architecture (i.e., integrated memory controller and CSI) bodes well for the company as it transitions off of the Bensley platform in 2H08.

Intel will introduce its next-generation server platform named Thurley in 2H08 and will feature the Gainestown processor and Tylersburg chipset. Most of the time, a platform upgrade represents an evolutionary step forward-however, they view the introduction of Thurley as a revolutionary change and dramatic improvement in Intel's core system architecture.

Gainestown-Intel's masterpiece in the works: Similar to Barcelona, Gainestown will be a monolithic quad-core processor in the Nehalem family and will be manufactured at a mature 45nm node. The most dramatic architectural changes, however, lie in the use of Common System Interface (CSI) and an integrated DDR3 memory controller (iMC). CSI is a coherent, point-to-point interconnect (similar to AMD's coherent HyperTransport), and replaces the aging Front-Side Bus (FSB). Gainestown will also feature a shared 8MB cache, improved power efficiency and Hyper-Threading capabilities. Firm's checks on Gainestown have come back extremely favorably, with OEMs and systems builders particularly excited about the adoption of the DDR3 iMC and CSI.

The firm is incrementally more positive on shares of Intel given the shift in market momentum toward Core 2 products (i.e., Woodcrest, Clovertown, Conroe and Merom), and are further encouraged by Intel's longer-term road map, particularly on server. Given the current aggressive pricing environment, however, they believe that pricing will weigh on margins in the near term. Despite trading below the historical average P/E of 23x, they believe that shares are fairly valued, trading at 15x 2008 EPS estimates of $1.25. Maintains Market Weight rating on shares.

Notablecalls: Not actionable but good to know category. Goes to show how little head start AMD has with their Barcelona.


yknotbfree said...

Yeah, I guess a FULL one year LEAD of AMD's Barcelona over Intel's Gainestown is meaningless?!? AMD's Barcelona 4-core & 2-core derivatives will show a massive improvement in SSE and floating point performance (virtually double the current core design). This will put AMD's performance back in front of Intel. It is still too early to see how well CSI can compete with Hypertransport. Intel will only realize performance gains with use of the (IMC) with large memory applications, where their large secondary cache gets swamped.
Whereas, Barcelona will already have DDR3 memory support built in (according to previous briefings) this year and will just need a motherboard with the proper sockets for it to use it. AMD is just waiting for a more beneficial cost/benefit price structure for the move to DDR3. In addition, AMD can produce their mQUAD-core on 65nm while Intel will need to wait for a mature 45nm process. AMD might be able to move to an 8-core model by then. But then again 2H of 2008 is light-years away in the computer technology space. Intel has had to scrap many CPU designs in the past recently, so better to wait until it is closer to production and see if it is on time.

Jack said...

Both AMD & INTC are down and seemingly have all the bad news baked into both stocks. I don't know who will win in the medium to long term (the market has obviously made a judgement short term against AMD) but I don't think either of these companies goes away. I already have a position in INTC, but at these levels I think it is a perfect time to get an equal position in AMD/ATI. That way going forward I get both stocks with the downside baked in and the upside beckoning for at least one of them.