AMD's Trinity Processor vs Intel's Ivy Bridge, Ivy Bridge Tops Trinity

The "risk-off" trade, combined with what seems to be broader acceptance that we are unlikely to see a sharp semiconductor cyclical revenue snapback, will likely continue to weigh on the group despite gradually improving fundamentals.

We are in no rush to catch a falling knife, and we would ideally like to see wider recognition that semis are closer to our model of U.S. GDP plus 100 basis-points growth, but with the PHLX Semiconductor Sector (SOX) already 17% off its recent peak and valuations appearing to be more reasonable than they were even a month ago (pure cyclicals in our coverage now under 15 times our below-consensus 2013 earnings-per-share estimates), improving visibility into even a seasonal third quarter/fourth quarter (which would put second-half 202 up 10% year-over-year and drive full-year 2012 flattish over 2011) would make us more constructive on the group as a whole.

A relatively quiet week from a fundamental perspective -- management commentary from a large competitor conference remains comparatively optimistic, with several mentions of a potential inventory cycle despite macro concerns. Our own field work suggests that, while de-stocking is complete, there is no impetus from customers to build inventory, leaving semis at the mercy of end demand.

Offset reporter Analog Devices (ticker: ADI) (Tuesday) will help gauge broad-based semi trends -- our model is essentially in line with consensus for both the April and July quarters, though below for October and fiscal 2013. Results from Dell (DELL) (Tuesday) and Hewlett-Packard (HPQ) (Wednesday) will be important for the PC chain, and BBY (Tuesday) should provide a read-through into demand for consumer electronics. A variety of semi names will present at a competitor conference in New York, and, hot on the heels of its recent April quarter results, Nvidia (NVDA) will hold its analyst day Thursday.

Advance Micro Devices' (AMD) Trinity seems unlikely to gain share, and will likely compete on price rather than performance against Intel's (INTC) Ivy Bridge. Earlier this week, AMD announced the rollout of its long-awaited Trinity APU (next generation advanced processing unit, which combines a 32nm Piledriver CPU and Northern Islands GPU on a single die).

Bulls have focused on the potential for Trinity to gain market share in PC client -- our view, based on field work, an analysis of available performance data, and a collection of product reviews, is that Trinity will compete primarily on price rather than performance. Launch timing has also been disappointing to many, with Ivy Bridge generally available ahead of comparable Trinity products.

This disappointment, combined with AMD's lagging position in high-average selling price (ASP)/high-margin server CPU -- our due diligence suggests that AMD is essentially not part of the discussion when it comes to data-center builds -- suggests that many remain overly optimistic on AMD's earnings potential for 2012-2013.

Source: Onlinebarrons

Tags: Intel, Ivy Bridge, AMD, AMD Trinity, Processor