Intel and AMD Report Record 1st Quarter Revenues

What a difference a year makes. The start of 2010 ended what can only be considered a disastrous 2009, not just for semi-conductors, but for the market as a whole as we begin to recover from the worst recession in over 80 years. It is clear that Uncle Ben Bernanke's 0% interest rates are fueling the next great bubble to replace the real estate bubble which Greenspan induced as a result of the Dot-com bubble. Where this bubble will go is anyone's guess (My bet is on T-Bills and the Federal Government's record deficits.) Meaning we are experiencing a nominal recovery of increased spending, as opposed to a real recovery on sound fundamentals, but I digress. Regardless of the cause of the increased demand, businesses are doing everything they can to soak up as much of it as they can and Intel and AMD are no exception.

Both companies reported record 1st Quarter revenues. Coming off such a dreadful 2009 makes this even more impressive. Whether this is a result of a strengthening technology sector, the release of new products or the unleashing of pent up demand from consumers and businesses from last year (perhaps a combination of all), this was a great quarter for both companies no matter how you slice it.

INTC


Great numbers and results all around for Intel. Gross margins continue to improve to mind boggling levels. At this rate Intel will post the largest yearly profit in history. A few things that stand out from the report, strong growth in nearly every sector except for Atoms which were down significantly. Despite Intel's assurances that Atoms and Notebooks did not cannibalize each others sales, I can't help but see a correlation with last quarters drop in Atom sales with that of record mobile chip shipments. Whether this was "good" or not is hard to tell since both products are profitable, but it's a great hedge strategy for all market conditions. Outside of normal growth and expansion, the Atom's make for a great value segment in down markets and Notebooks are the perfect product for booms. Either way, Intel can take market share.

We also saw the release of Nehalem-EX for the MP server segment which replaces the much maligned Dunnington platform for a true competitor in this space to take on AMD in this segment in a way that has been lacking for some time. It may not have made a large impact on financials due to its late release in the quarter, but chips were shipped for revenue. In the mobile space, we saw the release of the Westmere family chip Clarkdale which likely drove the strong increase in mobile sales. Also, the conference call noted that OEM inventories were normal but Intel inventories were lean. Indicating the upside of last quarter was above Intel's internal estimations.

AMD


Gross margins are up to a healthy 47%, operational profits are reported at a strong $182M and a net profit of $257M. Considering this was a "seasonally down" Q1 makes this even more impressive. The only caveat is the inclusion of a $325M non-cash assessment due to "deconsolidation" with Global Foundries. Excluding this one-time gain will bring AMD's net profit to a narrow loss for the quarter. Which means they essentially broke even. If the market continues to improve, it's likely that AMD could even report a net profit for the calendar year in spite of one-time accounting tricks. Not only were CPU shipments strong, but GPU shipments increased sequentially due to a strong ATI lineup.

AMD didn't sit idly by with old products going into the new year. We saw the much anticipated release of Magny-Cours, the MCM 12-core server chip (2 x 6 core) to compete in the EP space which Gulftown had taken by storm. We also so a flurry of higher binned Phenom II's giving AMD a strong lineup in the mainstream segment. Overall, a very good quarter with the signs of finally breaking out of the continual slump of heavy losses.