It's been years since Advanced Micro Devices (NYSE:AMD) has been a leader in any market. First, it challenged Intel (NDAQ:INTC) in the battle for semiconductor supremacy - and lost, badly, watching helplessly as Intel's superior technology reached 75% dominance of the microprocessor market by 2007. As Intel surged, AMD swooned, and made a fateful decision to diversify its business. The purchase of ATI Technologies in 2006 burdened the books to the tune of $5.6B - and investors punished the stock, which has dropped nearly 90% in the two years since.

The purchase of ATI gave AMD an inroads in the growing GPU industry - graphics processing units that render video games in a vivid three dimensions. But there is intense competition in that market, thanks to NVIDIA (NDAQ:NVDA), which focuses exclusively on graphics chips. The market share statistics tell the story of AMD's decline among the microprocessor industry's big three (including both computer processors and graphics chips) - while Intel and NVIDIA have thrived, AMD has lagged behind.

Market Share Comparison to Competitors (%) Q207 Q107 Q406 Q306 Q206 NVDA 32.6 28.3 28.5 28.5 19.7 INTL 37.6 38.7 37.4 37.1 40.4 AMD/ATI 19.5 21.9 23.0 20.9 26.7

But AMD has begun to gain gamers' attention with its efficient business model - make chips that sacrifice a bit of speed but are easy to make and can be sold at lower prices. The company's newest high-end graphics cards use two GPUs rather than one - and will start at $549, a serious discount over NVIDIA's latest competing product, which debuted at $649 in June.

As the price of both products declines rapidly (NVIDIA's GTX cards are already going for $449), the competitors will continue to pump research money into the development of their next product - and strive to capture the imagination of gamers, the niche audience for high end graphics cards. Consumers buy NVIDIA and AMD's cards along with powerful gaming computers, and they often customize these products to meet their own specifications. Preferences in this market can be fickle forces, and investors looking for rebounding tech stocks in the slumbering bear market would be wise to keep track of the graphics gamers are using.

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Related Companies:

Intel
NVIDIA

Related Concepts:

Semiconductor Cyclicality
Commoditization of PCs
Telecommunications Industry

Amgen (NYSE:AMGN) made its reputation as one of the premier firms in the biotechnology industry with its blockbuster anemia drugs, Aranesp and Epogen. Worldwide sales of anemia drugs made up around half of Amgen’s $14.8B revenue in 2007 and an even larger percentage of its profit - Epogen, its original bestselling medicine, brought in revenues of $2.5B, while Aranesp sales hit $3.6B. But these impressive totals obscure falling demand for the drugs - in the the second quarter of 2008, for example, sales in the United States plunged 26 percent.

A major reason for the slow numbers is that public perception of Amgen's big drugs has become increasingly negative. Amgen's medications are commonly used by cancer victims to treat anemia caused by chemotherapy treatments, and studies in the past year have shown that these drugs can increase the risk of blood clots and death in these patients. Amgen's stock was punished in the spring after the studies hit mainstream media in February.

Lately, though, things had been looking up for Amgen - its drug Denosumab has been looking good in Phase III trials and shows promise as a breakthrough drug in the $7B+ osteoperosis market. But this week brought rain on Amgen's parade - the Food and Drug Administration ordered the company to change the labeling on its drugs in a way that could reduce the use of Aranesp by an additional 40%. It was the first time the FDA has done this, invoking its authority under a 2007 law that allows it to order changes to a drug's prescription information.

The label change, and continued negative press, could hurt sales of Amgen's flagship drugs even further as patients seek alternatives with less beleaguered reputations. The company, of course, spins the news as in line with expectations - saying in a statement that it had already taken the FDA's ruling into account when it gave financial guidance earlier this week, and calling attention to overall financial results that beat Wall Street expectations for the second quarter.

Investors seem inclined to agree with the company's optimism - shares were up to $62.63 on Thursday, close to the 52-week high of $64.00. Basically, Amgen buyers are betting on the bone drug Denosumab as a more important indicator than the slowly falling anemia sales. This makes sense in an industry with a short attention span, where patents expire quickly, and when they do generics quickly devour their market share. This means that Amgen, and its peers, are constantly looking forward to the next big drug - and AMGN investors must be confident that the company has found the next blockbuster in the osteoperosis market.

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Related Companies:

Merck
Johnson & Johnson
Roche

Related Concepts:

Incidence of Cancer
Osteoperosis
Biotechnology
Health Care

Given the sorry state of the market these days, lots of investors are looking for so-called "recession-proof" investments - companies that will perform consistently in bull runs and bear markets to keep their money secure. What better place to look than a company that dedicates itself to safekeeping? Iron Mountain (NYSE:IRM) helps customers store and discard paper documents securely. In effect, this means driving a van to a customer's location, filling it with documents in boxes that IRM has sold to its customers, then driving them to a secure location to be retrieved when the company needs them, or shredded when the docs have outlived their usefulness.

There's a lot to like about Iron Mountain - 93% of the Fortune 1000 uses the company for at least one of its services. Its business has stickiness as well - once a company signs on with IRM, they are unlikely to switch providers or take the operation in house. In the last major economic crisis, after the tech bubble burst in 2001, IRM's revenues kept growing, and its three segments (Domestic Physical storage, International Physical storage, and Worldwide Digital storage) have grown at a 12%, 16%, and 39% CAGR between 2005 and 2007, respectively. Iron Mountain's main competition doesn't even come from another company - it comes from its own clients, who often choose to manage sensitive information on their own rather than outsourcing to a company like IRM. That's why Iron Mountain controls just 33% of its market despite its impressive client list and continued growth.

IRM's Revenue and Operating Income, 2005-2007 Source:IRM 2007 10-K

But before you put all your eggs into Iron Mountain's super-safe basket, think about the company's future prospects. To keep pace with the new digital age, IRM will need to evolve beyond its core, physical document business. It has boosted its case for becoming a one-stop shop for all of a company's information needs with the 2008 debut of its SaaSProtect Escrow program, which will provide a back-up plan for customers who rely on software-as-a-service applications. Iron Mountain will try to cross-sell existing customers on its ability to provide digital safe-keeping, and in doing so boost a segment that represented just 6% of revenues in 2007.

Long term, an IRM investor must decide - does the company's dominance in physical information storage give it the opportunity to become a leader in digital storage as well? Or will Iron Mountain become a dinosaur in the high-tech world, relying on vans and boxes while big business moves on to servers and semiconductors? In the short term, the stock has dropped 25% since February as it keeps pace with the market. At this price, an IRM investment seems like a safe bet - fitting for a company that makes its living on security.

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Related Companies:

Iron Mountain
International Business Machines (IBM)

Related Concepts:

The Internet Impact
Sarbanes-Oxley Act

Southwest Airlines (NYSE:LUV) reported earnings today - and for the 69th straight quarter, the airline turned a profit. Its quarterly net income increased 15% from a year ago, to $321 million. These results are worth a closer look, considering the rest of the major airlines lost a combined $6 billion in the second quarter. How does Southwest stay in the black as the rest of its peers bleed red? The secret - it hedges its fuel prices better than anyone in the business.

A hedge, at its most basic level, is when a company locks in a price for the raw materials that it will need to run its business in the future. In Southwest's case, these futures contracts are for oil - more specifically, the jet fuel it needs to power its planes - and no matter what happens to the price of oil in the ensuing months, when the due date comes the company pays the contracted price. Using this strategy, Southwest has saved $3.5 billion in fuel costs since 1998 - which translates to about 80% of the company's profits in that time period.

But there are risks involved with hedging - if oil prices go down rather than up, Southwest could suddenly end up paying much more than market price for its fuel. But lately oil has just kept on climbing (as you've probably noticed at the gas pump as the meter clicks away at a $4.00 a gallon clip), and Southwest's strategy has been wildly successful. For the rest of 2008, Southwest has 65% of its fuel hedged at $49 a barrel - while competitor American Airlines (NYSE:AMR), for example, has just 34% of its fuel needs hedged, and will pay $82 a barrel for these contracts. In 2009, Southwest will pay $51 a barrel for 50% of the oil it needs to run on schedule.

So what's the catch? Well, eventually futures contracts expire, and you've got to sign new ones. That's not so easy with oil well over $100 a barrel - and although futures contracts for the black gold fell $20 over the past two weeks to $124, that's still too much for the company to remain profitable. In fact, Southwest hasn't signed a new hedging contract in 15 months, and a shrinking percentage of its fuel needs are covered over the next four years. Check out this table - by 2012 the company will have just 15% of its fuel needs under hedging contracts, and if oil prices stay near their current levels ($135 a barrel) the company will be paying an average of $124 a barrel for its fuel.

That's simply too much for the company to stay profitable, especially in a cutthroat industry where Southwest has made a reputation as a discount carrier. For now, Southwest may be sitting pretty, but how long until it must start raising its fares, charging for checked bags, and canceling flights, as so many of its industry peers have done in recent weeks? Or can LUV keep up its remarkable string of profits and continue to hold out as a cheap alternative for getaway vacations? The market is skeptical - see the 6% dive in stock price on the day the second quarter profits were announced - and investors should be cautious when evaluating this apparent diamond in the rough.

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Related Companies:

Southwest Airlines
American Airlines

Related Concepts:

Oil Prices
Airline Travel
Airlines Data