That sheer size is no guarantee of success is impressively demonstrated in the semiconductor industry. Intel has dominated the chip market for decades, while AMD is trying to stand up to the giant. A naked look at annual sales reveals the supposed inferiority of the smaller rival. Last year, Intel generated almost USD 72 bn in sales, more than ten times that of AMD.
But in the fight "David against Goliath" "David" aka AMD seems to gain more and more the upper hand. This is particularly evident in the predicted growth. The consensus estimates are for average annual sales growth of 27% in the next two years, while earnings per share are expected to rise by more than 40% at the same time. At Intel, on the other hand, the analysts expect revenues and earnings to fall in 2021 compared to 2019.
This gap in the operating business was also reflected in the latest interim reports. After the second quarter, AMD raised its annual targets due to stronger demand for semiconductors, which are needed for home office solutions, among other things. The positive trend continued in the third quarter. With sales of USD 2.8 billion - an increase of 56% over the previous year - AMD achieved a new record and operating profit more than doubled again to USD 449 million. This exceeded analysts' expectations. Intel, on the other hand, disappointed with its latest figures as well as its outlook for the rest of the year, triggering the biggest price slide since July.
AMD is heating up its arch-rival in several ways. On the one hand, the company's powerful processor architectures and modern 7-nm production at contract manufacturer TSMC recently helped it increase its market share at the expense of Intel. In desktop CPUs alone, the company, headed by Lisa Tzwu-Fang Su, was able to increase its market share from 12.3% two years ago to almost one fifth by mid-2020. Whether in the PC sector, gaming or data centres, AMD processors are enjoying increasing demand in many places.
In addition, the chip manufacturer is attempting to expand its product range through takeovers. In this regard, AMD caused a bang at the presentation of the latest quarterly figures. The company announced that it would swallow Xilinx, which is known for programmable logic chips, for USD 35 bn. This is a clever move, as semiconductors are used in many future trends such as 5G. "Together, the combined company will capitalize on opportunities that span some of the industry's key growth segments, from data centers to games, PCs, communications, automotive, industrial, aerospace and defense.", CEO Lisa Su commented on the deal.
The most diversified positioning is essential for the sustainable success of the company. This is because semiconductors are very sensitive to economic cycles, which means that they are exposed to cycles and demand is therefore volatile. The last time growth in the chip market slowed down was in 2018. This in turn led to a setback for chip shares. The world's most important industry index, the PHLX Semiconductor Index, fell by just over 8% at that time.
The AMD share, on the other hand, could not be stopped recently. Without any significant setbacks, the share price has increased tenfold since the beginning of 2018. However, due to the positive growth prospects, the valuation is simultaneously going down. If the P/E ratio based on the profits expected for this year is 75.6, the value will fall to 38.2 by 2022. According to the forecasts, earnings per share will thus almost double during this period. Nevertheless, the majority of experts are cautious about the further potential following the recent dynamic share price development. The average 12-month price target currently stands at USD 82.25, which is roughly equivalent to stagnation.
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