The Ratings Game
Northland Capital analyst says Intel’s move to start a foundry business gives AMD ‘preferred’ standing with chip-manufacturing giant TSMC
Advanced Micro Devices Inc. could continue to see strong momentum, in part owing to recent strategic choices made by rival Intel Corp., according to an analyst.
Northland Capital Markets analyst Gus Richard upgraded AMD’s stock
to outperform from market perform Thursday, writing that Intel
“made a strategic faux pas” when the company said earlier this week that it plans to start offering foundry services, while also producing some of its own chips and outsourcing others.
Because Intel will be competing with Taiwan Semiconductor Manufacturing Co. Ltd.
with its foundry business while also outsourcing some of its own products to TSMC, the company could become “persona non grata” at TSMC, according to Richard. AMD also uses TSMC for manufacturing, and its business could become increasingly important to TSMC now that Intel has rocked the boat, he argued.
“We believe that Intel’s commitment to re-entry into the foundry market and maintain leading-edge manufacturing capacity makes it a low priority at TSMC,” Richard wrote in a note to clients. “AMD and [Xilinx] on the other hand are TSMC preferred customers as all their leading-edge volume is produced at TSMC and the more they win the more business TSMC wins.”
The new dynamic “will likely result in AMD getting earlier access to technology and better capacity allocation cementing the company’s x86 process technology leadership for the foreseeable future,” he continued, which could help the company generate higher average selling prices and boost its margins.
Richard sees the possibility that Intel might eventually be able to drive better performance through packaging technology but said that this is still unproven and some years out.
Though AMD shares are off 17% so far this year, they’ve gained 71% over a 12-month span as Intel shares have risen 25% and as the S&P 500
has increased 57%.