Mobile
The technology industry is infatuated with mobile. There’s good reason for this, since mobile devices are proliferating at a rapid pace as more and more people become comfortable with the idea of using mobile devices to surf the web. That increasingly means use of video and music streaming services, too, which requires faster chips and more mobile bandwidth. It also requires more storage on the back end.
That last point is an important fact to remember. Every mobile device connected to the web is connecting to a physical computer that lives someplace. So, while Intel Corporation (NASDAQ:INTC) has been a laggard in the mobile chip space, it still sells a product that the mobile revolution needs. As the so-called “cloud” is built out, server chips are likely to remain a key product.
Intel Corporation (NASDAQ:INTC) benefits from being one of the best chip makers around. Although the impact of tablet computers on personal computer demand has led to a softening top line, that trend is overshadowing the positives at Intel Corporation (NASDAQ:INTC). And, the company has been working with Google Inc (NASDAQ:GOOG) to introduce mobile chips for Android devices. The shares, while off of their lows, are still languishing. The stock yields around 3.7%.
A Big Jump
Meanwhile, five straight quarters of sales declines at Advanced Micro Devices, Inc. (NYSE:AMD) coupled with three consecutive quarters of red ink have been welcomed by a massive share price advance. The big reason was some chip wins in the video game console market from giants Sony and, potentially, from Microsoft Corporation (NASDAQ:MSFT).
While those chip sales will be a big boost to the company’s top and bottom lines, it won’t likely change the bigger issues AMD faces. The company has always competed on price by being the cheapest chip option. That’s a fine model, but it has left the company as something of an also-ran.
The game console push is part of an attempt to diversify, since Intel Corporation (NASDAQ:INTC) isn’t a big competitor in the space. Unfortunately, the console market is tiny compared to the PC market. So, the nearly 10% first quarter decline in PC chip sales is still the bigger issue to watch at Advanced Micro Devices, Inc. (NYSE:AMD). While it, too, will benefit from increased demand for server chips, if the PC trend doesn’t change, the company could have a hard time making ends meet.
Luckily, the company has about $1 billion in cash and investments and no long-term debt. So, it isn’t likely to go out of business in the near term. However, it also isn’t likely to become a more material competitor in its primary market either.
Another Chip Option
Interestingly, NVIDIA Corporation (NASDAQ:NVDA) may be a better option than Advanced Micro Devices, Inc. (NYSE:AMD) for those seeking a turnaround play. NVIDIA shares are well off of their highs and the company has a stronger foothold in a key niche, graphics chips. AMD is a major competitor in that market, but NVIDIA Corporation (NASDAQ:NVDA) appears to be better positioned overall. In fact, the company’s top line has been growing of late, instead of contracting.
The graphic chip maker is facing competitive threats from Advanced Micro Devices, Inc. (NYSE:AMD) and Intel, which are both adding graphics chips to their PC chip offerings, but so far that doesn’t appear to be slowing NVIDIA Corporation (NASDAQ:NVDA) down. Moreover, the company is working to establish itself in the mobile graphics space and within the high-powered computer realm. (The heavy math involved in creating graphics dovetails quite nicely with the later business.) It appears to be gaining traction in each.
The shares yield around 2% based on the recently initiated dividend. While earnings have been volatile, and dipped into the red during the 2007 to 2009 recession, the company earned around $0.90 a share in each of the last two years. It has $3.7 billion in cash and investments and no long-term debt, giving it ample firepower to push into its new target markets.
Not in the News
While AMD has been in the news for its console wins and quick share price ascent, it may not be the best option in the chip space. Those who have benefited from the share price pop should probably take some profits. For those with a conservative bent, Intel Corporation (NASDAQ:INTC) is still the 800 pound gorilla and the best long-term option. For those looking for a more aggressive option, NVIDIA looks better positioned to turn its business around than Advanced Micro Devices, Inc. (NYSE:AMD).
The article PC Chips Are Still A Big Problem originally appeared on Fool.com and is written by Reuben Brewer.
Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Intel and NVIDIA. The Motley Fool owns shares of Intel. Reuben is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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