Answer

AMD and Intel Performance Management and Valuation

Income Generation Efficiency

For more than a decade, AMD and Intel have been competing for a larger market share in terms of producing the most advanced and effective micro-processing technologies. This rivalry has forced competitors to scale up their productions, hence favoring the consumers concerning the acquisition of high-quality products (Alamsyah, Utomo & Gunawan, 2018). All the same, Intel has been the leading company with an average of 60% of the market share and AMD garnering roughly 30%. In the fourth quarter of 2020, Intel’s market share dropped to 51.1% while that of AMD rose to 48.9%. Respectively, analysts suggest that AMD’s market share in the next 5 years will surpass Intel’s with a significant margin.

Growth

In line with the revenue, both companies have recorded a steady increase with AMD earning $9.763 billion in 2020, down from $6.731 million in 2019, and Intel earning $77.87 billion in 2020, down from $71.97 billion in 2019. This suggests that Intel is the most efficient income generator compared to AMD (Mofrad et al., 2019). Although AMD has been receiving a relatively lower income as compared to Intel, the company’s growth rate has increased more than double its competitor. In 2019, Intel recorded a revenue of $72 billion, which was an increase of 1.7% from the previous years. On the other hand, AMD which received an income of $6.7 billion in 2019 experienced a growth increase of 4% from the previous year.

Analysts suggest that Intel is currently trading at lower multiple rates. Intel’s forward P/E ratio stands at 11.3 versus 41 for AMD. Nevertheless, concerning earnings growth, scholars forecast an increase in profit for Intel averaging 9.1% annually over the next 5 years. On the same note, Wall Street expects AMD’s marginal profits to increase by 35.7% yearly over the same period.

Valuing Ratio

In 2019, AMD’s solvency ratios were as follows. The debt ratio stood at 0.53, the debt-to-equality ratio was 1.13, and the interest coverage ratio was at 4.96 (Bragg, 2017). In line with the liquidity ratio, AMD’s current ratio was 1.95, the quick ratio reached 1.51, and the cash ratio stood at 0.64. The company’s profitability ratios were as follows: profit margin 5.1%, return on equity (after-tax) 16.7%, return on assets 6.4% (“Advanced Micro Devices, Inc. financial analysis and benchmarking using SEC data”, 2021). The activity ratios were: asset turnover 287 and receivables turnover 89%. Conclusively, analysts were able to establish that AMD’s 2019 financial condition was poor as compared to the financial condition of other companies.

On the other hand, Intel’s solvency ratios in 2019 were as follows. The debt ratio stood at 0.42, the debt-to-equality ratio was 0.73, and the interest coverage ratio was at 50.20. In line with the liquidity ratio, Intel’s current ratio was 1.40 quick ratio reached 0.40, and the cash ratio stood at 0.05 (“Intel Corporation revenue, current and other financial ratios and comparison analysis”, 2021). The company’s profitability ratios were as follows: profit margin 29.2%, return on equity (after-tax) 27.7%, and return on assets 15.9%. The activity ratios were: asset turnover 671 and receivables turnover 37. Similarly, analysts suggest that Intel’s financial conditions also performed worse.

Valuation of the Companies

Using the above data, the financial health ratios of AMD was stronger than that of Intel. In retrospect, investing at AMD would be more profitable than at Intel. In summary, the financial metrics of AMD indicate that the company is doing better than Intel (Mofrad et al., 2019). Despite being relatively smaller than its competitor, AMD had been able to outperform Intel in terms of finances because of increased assets. Also, researchers suggest that the leadership of the company has been the major contributor to its success.

Strengths and Weaknesses

The most practical strength of Intel is that the company is currently the leading innovation center for creating better computers and the associated technologies. By merging with companies like Mobileye and Altera, the company was able to enhance its computer technologies enabling the company to dominate the data center CPU PC market (Alamsyah, Utomo & Gunawan, 2018). Another strength is that Intel has a massive global presence in competing economies. As for its weakness, Intel is only confined to the PC segment, and with the intense competition growing becomes relatively slow

In line with AMD, the company’s main strength is producing high-quality computing technologies making their products more desirable in the consumer market than that of its competitors. Another strength is exceptional research as well as development (Mofrad et al., 2019). The company has excellent research and growth capabilities that help in enhancing its innovative products. Similarly, the firm’s operations are established in almost every country around the world giving it a wider market to sell its products. As for its disadvantages, the firm is also confined to PC technologies. With the increasing mobile market, it would be imperative for AMD to venture into this new and promising market.

Merger Synergies

Recommendations

In recent years, rumors regarding AMD and Intel merging have hit the business headlines on several occasions with many anticipating this new development. None of the two firms have attested to the speculations but in case of a merger, Intel will be the acquirer. All in all, the taking over of AMD by Intel will never happen due to several reasons. The first being that regulators would certainly not approve the decision (Alamsyah, Utomo & Gunawan, 2018). Currently, Intel controls almost three-quarters of the CPU PC and 90% of the data center market. AMD is its only viable competitor since it is the only other major producer for microchips. There a takeover will change the duopoly into a monopoly market. The merger would give Intel absolute pricing power as well as control over data center and consumer markets. Considering that other startup companies selling the same merchandise are also competing for their market share, antitrust regulators would discourage the merger.

Another reason why I would not recommend this merger is that it does not make any strategic sense. When Intel acquired Mobileye and Altera it increased its dominance in the data center, PC, and CPU market. Mobileye enabled Intel to lead in the advanced driver-assistance system (ADAS) market and computer chips for autonomous cars (Mofrad et al., 2019). Altera gave programmable chips known as (FPGAs), which can be used by a significant number of industries. Intel has also acquired smaller businesses such as the Internet of Things (IoT) and ADAS Company, Nervana, and Movidius (Bragg, 2017). These acquisitions suggest that Intel aspires to evolve by increasing its reach to new markets, but purchasing AMD would hardly expand its exposure to the former data center PC CPU market.

The price tag for acquiring AMD is also another reason why a merger would be non-effectual. Intel purchased Altera for $17 billion and $15 billion for taking over Mobileye. To date, these acquisitions have been Intel’s greatest move. AMD’s enterprise value, on the other hand, is around $20 billion. Including and 50% acquisition would cost Intel roughly $30 billion to close the deal (Alamsyah, Utomo & Gunawan, 2018). When comparing to the older acquisitions, buying AMD would be a massive purchase considering that the company’s revenue for 2020 was $9.763 billion in cash and assets. Also, Intel is still paying off the $25 billion debt it collected from the previous deals.