April 26, 2009 in Business

Intel, AMD would do well to quit fighting each other

Universal Press Syndicate
 

Intel (Nasdaq: INTC) recently launched a new lineup of server and consumer chips, calling them the “most revolutionary server processors” since the Pentium Pro nearly 15 years ago. The Xeon 5500 series obliterates previous-generation Xeon chips in nearly every benchmark you throw at it.

So is the processor war over? Did Intel win? No, and not yet.

Advanced Micro Devices is certainly down at the moment, but hardly out. It has steered clear of speed races recently, focusing more on graphics products. And it’s working on its own next-generation chips, which will be produced at low capital costs by its recently spun-off manufacturing arm. In the meantime, AMD can cling to a few niche markets where it still shows muscle, such as eight-processor monster systems and low-end servers.

Above all, it’s not really a head-to-head battle at the moment. The entire chip market is so beaten down by this recession and the resulting technology budget cutbacks that you can think of Intel and AMD as rivals stuck in the same boat. It makes more sense to simply try growing back the lost total market instead of killing each other over a few points of market share. It’s time to bake a bigger pie. Fight over the slices later.

(Intel is a “Motley Fool Inside Value pick” and the Fool owns shares of it.)

Ask the Fool

Q: If a company pays out more in dividends per share than it has in earnings per share, is that a problem? – B.W., Columbus, Ind.

A: That’s a definite red flag, warranting more research. Imagine Meteorite Insurance (ticker: HEDSUP), which has paid out $3 per share in dividends in the past year, but sports earnings (also known as net income) of just $2 per share over that period. It can manage this if it has a sufficient cash hoard to tap. (Glance at any company’s balance sheet and you’ll see its recent cash level.)

Still, no company would want to keep paying more in dividends than it’s generating in cash. That’s not sustainable. If Meteorite Insurance is just experiencing temporary underperformance, the discrepancy might not be a big deal. But if its troubles are deeper, it’s likely to consider reducing or eliminating its dividend.

Remember also that earnings are not the same as actual cash generated. Due to various accounting practices, the earnings number can be manipulated quite significantly. You often get a better picture of how much cash a company is generating by studying its statement of cash flows.

To see which healthy and growing dividend payers we recommend (many with dividend yields topping 8 percent), take advantage of a free trial of our Motley Fool Income Investor newsletter at www.income investor.fool.com.

Q: What books cover the world’s best investors? – S.K., Santa Maria, Calif.

A: Check out “Money Masters of Our Time” by John Train (Collins Business, $16) or “The Market Gurus” (Validea, $30) by John Reese and Todd Glassman. They’ll introduce you to folks such as Warren Buffett, Peter Lynch, George Soros, John Templeton, Benjamin Graham and Philip Fisher.

My dumbest investment

I bought Amgen about 25 years ago when it first went public. But alas, I sold it a few months later after a modest gain that I viewed at the time as a “killing.” – F.G.F., online

The Fool responds: Well, you’re lucky that at least this mistake didn’t cost you any actual dollars. The potential gain that you missed out on is significant, though. Over the past 25 years, Amgen stock has advanced at an average annual clip of nearly 30 percent, splitting five times along the way. A $1,000 investment in 1984 would be worth more than $400,000 today. Your mistake is a common one, though. Many people sell a holding after achieving a particular gain, such as 20 or 30 percent. They tell themselves they’re not going to be greedy, but if the company is still healthy and growing, and its stock is not significantly overvalued, hanging on is often well worth it. The people who have made real killings on stocks such as Wal-Mart and Microsoft have done so over many years.

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