Intel, AMD don't see demand falling off cliff

The CEOs at Intel Corp. and Advanced Micro Devices Inc. (AMD), which virtually own the market for computer processors, had one message for investors this week: "What, me worry?"

Wall Street may be listening. Investors pushed AMD shares up on Friday, a day after the chip maker posted better-than-expected quarterly results. Intel, which reported disappointing results on Tuesday, rose as well on Friday.

Before those gains, AMD shares had lost more than 18% so far this year, while Intel had shed more than 15%, hammered by concerns of a possible U.S. recession. Both stocks underperformed the Nasdaq and the Standard & Poor's 500 indexes, which were both down about 10%.

Analysts said that concern about the two chip makers may be overdone. For one thing, Intel gets about 75% of its revenue outside the U.S., and two-thirds of all PCs are sold abroad.

"U.S. macroeconomic concerns are being overly emphasised," wrote JoAnne Feeney, an analyst at FTN Midwest Securities Corp. Feeney added that Intel is creating new markets for its processors that lay the groundwork for future growth. It also continues to trim expenses and expects another $1 billion in savings in 2008.

Intel is not seeing order cancellations, and inventories are low, Feeney wrote, noting that European sales rose 22% in the fourth quarter from the previous quarter, strength that has persisted into 2008.

Intel's own forecast for the current quarter calls for a revenue decline of about 9%, compared to an average seasonal dip of 7%.

And AMD's first-quarter revenue has been falling in line with historical norms, as opposed to an economy-driven downward acceleration.

"We're still talking about significantly strong and healthy growth," even if it slows to about 8% from 10% or more in emerging markets, such as Eastern Europe, China, the Middle East and Africa, AMD CEO Hector Ruiz said during a Thursday conference call.

For his part, Intel CEO Paul Otellini, who is leading a drive to put Intel's processors into a wider array of consumer gadgets as its mainstay PC market matures, said he had seen no appreciable drop-off so far in the first quarter.

"You hear all of the pundits saying that the world is going to go to a trash basket and you worry," Otellini said during Intel's earnings conference call Tuesday. "At this point, we don't see anything on the horizon."

U.S. stocks tumbled earlier this week in the wake of poor retail sales data, dismal bank results and growing signs that the economy may be on the brink of recession.

Michael Splinter, CEO of Applied Materials Inc., a maker of equipment used to produce microchips, said in an interview that he is heartened to see top customer Intel planning to boost capital spending this year.

"What it means is they have confidence to continue to invest in infrastructure and major factories," said Splinter, who came to the top post at Applied after serving as an executive at Intel for nearly 20 years.

For AMD, 2008 augurs to be a vast improvement over 2007, when the chip maker's average selling prices for its chips cratered amid a stiff price war with Intel, analysts said.

AMD said it is on track to break even on an operating basis at the end of the second quarter and turn an operating profit for the third.

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