New Flaws Aren’t the Worst News for Advanced Micro Devices, Inc. Stock

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AMD stock - New Flaws Aren’t the Worst News for Advanced Micro Devices, Inc. Stock

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Advanced Micro Devices, Inc. (NASDAQ:AMD) has been hit by another security scare, this time a report from CTS Labs. The Israeli company detailed 12 “critical flaws” in its Ryzen chips, and gave AMD only 24 hours notice before publication. It couldn’t have helped but affect AMD stock.

But instead of slamming the stock and gaining wealth or fame, CTS Labs wound up getting slammed back by the tech industry, including Linus Torvalds, namesake of the popular Linux operating system.

The problem besides the lack of notice, he said, is that while the flaws may be scary, in practice they’re not dangerous.  That’s because to exploit them, a hacker must gain system administration privileges on a victim’s system.

If the hackers already have that, you’ve got bigger problems than chip flaws.

Still, the report sent the stock down 5%, from $12 per share to a March 16 opening of $11.50.

An AMD Stock Buying Opportunity?

Viceroy Research, which works for short sellers, says the flaws will drive AMD stock to zero, but as our Vince Martin wrote recently, far worse flaws did not drive down rival Intel Corporation (NASDAQ:INTC).

Even news that Intel CEO Brian Krzanich sold shares in his company after learning of the flaws, and before the public learned of them, hasn’t hit Intel stock, which is up 10% so far in 2018.

Why, then, should more difficult to exploit flaws, made public without proper notice to the manufacturer, destroy AMD?

AMD’s real problem is getting enough of its Ryzen chips and enough of its Radeon graphics processors produced to meet with skyrocketing demand from cryptocurrency miners, gamers and artificial intelligence.

AMD stock has lost 17% of its value over the last year, while Intel is up almost 42%, because Intel owns its own fabrication plants and can quickly expand production, while AMD is “fabless” and must depend on partners. Even if AMD designs are better than Intel’s, it will always be production-constrained.

The Enemy is Time

The real enemies of AMD stock are time and money.

It needs time to supply the market, having shown just $192 million in operating income during 2017, despite sales increasing 26% from $4.27 billion in 2016 to $5.33 billion in 2017. It also needs profits to keep researching the next advances in chip design – its research budget last year was $1.16 billion, against $3.27 billion for Intel.

AMD’s current challenge to Intel was built on a half-decade of research started under former CEO Rory Read, who is now with Dell. Current CEO Lisa Su is an MIT graduate and former International Business Machines Corp (NYSE:IBM) engineer who emigrated from Taiwan at age 2.

She has used her heritage intelligently, licensing chip designs to China, focusing on servers and game machines rather than PCs.

The problem is coming up with a second act. This is what has always bedeviled AMD, even under founder Jerry Sanders. Every few years Sanders would seem to have a competitive chip line, as fast as Intel’s but less expensive. Then Intel would smash AMD down, and the company would have to find another way forward.

Will AMD Sell?

The question, then, isn’t whether you should buy or sell AMD stock, but whether AMD will use its latest moment of success to sell itself to a better-capitalized company that can back its next breakthrough and provide competition to Intel over a longer period.

Given the current political climate, that won’t be a Chinese company. It’s unlikely to be IBM, either.

IBM sold its chip production years ago, into a money-losing Arab-owned AMD spin-out called GlobalFoundries, which just named ex-IBMer Thomas Caulfield its new CEO. Their latest fabrication plant will be in China.

Thus, AMD remains stuck between the rock of Intel and the hard place of capital. Betting on Su to successfully navigate between them is pure speculation.

Dana Blankenhorn  is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Tweet him at @danablankenhorn, connect with him on Mastodon or subscribe to his Substack.


Article printed from InvestorPlace Media, https://investorplace.com/2018/03/amd-stock-worst-news/.

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