All your chips now belong to the small island off the coast of China.
Both are from the ancient Taiwan capital of Tainan. Both of their companies also depend on the same chip supplier, Taiwan Semiconductor (NYSE:TSM). If Taiwan Semi can’t deliver, neither can they.
It’s for this reason I suspect reports on the death of Intel (NASDAQ:INTC) may be exaggerated, and the Taiwan lovefest overrated.
AMD in the Catbird Seat
Seen through the eyes of third quarter results, AMD stock is in the catbird’s seat. The company earned $390 million, 32 cents per share, on revenue of $2.8 billion for the September quarter. Revenue was up 56% year over year. Net income more than doubled.
Meanwhile, Intel had a quarter to forget. Net income of $4.3 billion, $1.02 per share, on revenue of $18.3 billion failed to impress. That’s because earnings were down 25%, and revenue down 4%, compared to the same quarter last year.
Notice, however, that AMD’s revenue was $1.5 billion less than Intel’s net income. Intel is still much larger because it owns fabrication plants or fabs, the factories that make chips. AMD and Nvidia don’t. They rely on Taiwan Semi fabs.
Taiwan Semi, meanwhile, had revenue of $12.4 billion for the quarter, and net income of 90 cents per share. This includes making chips for many companies, not just AMD and Nvidia, but for Apple (NASDAQ:AAPL) and, most important, Xilinx.
Xilinx, which makes communications chips as well as field programmable gate arrays (FPGA), had net income of $194 million, 79 cents per share, on revenue of $767 million for the quarter.
Can the Momentum Continue?
There is no longer doubt that AMD chips outperform Intel’s, or that Taiwan Semiconductor’s fabs are superior to Intel’s. But the current stock market action is based on momentum, an assumption that current trends hold.
No cash is being exchanged in the AMD-Xilinx deal. It’s all stock. For the $35 billion price to hold, AMD stock must stay strong through the end of 2021, because it will take a year to get this past American and (perhaps more important) Chinese regulators.
Meanwhile, the world will turn. Intel’s numbers were down because data centers slowed their spending. Large cloud companies increasingly dominate this market. There were 541 cloud data centers at mid-year with another 176 in the pipeline.
That dominance is increasing. Synergy Research writes that enterprise data center spending fell in the second quarter.
The future belongs to large cloud companies, and at the heart of the cloud business model is that you don’t need the fastest chips to succeed. You just need a lot of them. Intel makes a lot of them, and it’s questionable whether Taiwan Semi can supply the whole market.
The Bottom Line for AMD Stock
I take second place to no one in my appreciation of Su’s talent. I said as much when she took over AMD in 2014. But its Taiwan Semiconductor, not its Taiwanese customers, that’s the most important company in the world.
At the time of publication, Dana Blankenhorn had long positions in TSM, NVDA, INTC, AMZN, MSFT and AAPL.
Dana Blankenhorn has been a financial and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Write him at email@example.com or follow him on Twitter at @danablankenhorn.