GS TWIS - AMD's Q likely in line; NOR flash
creates risk while Ibiden some reward,
though likely more for Intel
Annual Earnings Expectations
52-Week Range US$25-11
YTD Price Change -22.39%
Market Cap US$7.2bn
Fiscal Year (ending in Dec)
2004 2005E 2006E
US$0.38 US$0.50 US$0.56
THIS WEEK IN SEMIS ('GS TWIS') (V3, N14) - 1) AMD (IL/N) reports Wednesday. We
expect an in line quarter with revenue -4.2% Q/Q as PC unit demand is tracking to
seasonal at best, and AMD's Q1 MPU ASP strength will be needed to offset the decline in
Q1 units. We expect that AMD continued to lose share to Intel in NOR flash. Finally, the
recent data point that Ibiden estimates were raised likely is an incremental plus more for
Intel rather than AMD (Ibiden makes package substrates for both Intel and AMD MPU's)
based on our impressions from a meeting with Ibiden 12 days ago. AMD's inventory level
will also be important (record 107 days end of December) as it needs to begin to decline
for H205 margin leverage to emerge. 2) NAND spot chip prices rose 1.3% M/M; NAND
retail card prices fell 4.0% M/M. 3) Stocks under coverage increased an average of 1%
last week.
1) AMD (IL/N) REPORTS FQ1 (Mar) WEDNESDAY; MORE RISK THAN REWARD
IN OUR REVENUE ESTIMATES - MPU RISK IS PRICING, NOR FLASH RISK IS
MARKET SHARE.
Advanced Micro Devices, Inc. Technology
Table 1. Key estimates for AMD
FQ1 (Mar) FQ2E (Mar) Rev ($M) EPS Rev ($M) EPS Goldman Sachs $1,210 $0.04 $1,270 $0.08
Consensus $1,211 $0.03 $1,214 $0.02
Source: FactSet, Goldman Sachs Research estimates.
Q1 PC UNIT DEMAND TRACKING AT LOW RANGE OF SEASONALITY; SOME MPU ASP
REBOUND EXPECTED; NOR FLASH PRICING STILL COMPETITIVE - We look for AMD to
post revenue and EPS of $1,210M (-4.2% Q/Q) and $0.04, respectively. AMD guided Q1 MPU revs
(51% of 2004 revs) flat to seasonally down Q/Q, and guided NOR flash revs (47% of 2004 revs)
down Q/Q due to ASP pressure, market share pressure from Intel, and seasonality. We are modeling
Q1 MPU revs down 1% Q/Q (versus historic average of up 4% Q1/Q4), based on units down 9%
and ASPs up 9%. Checks have been consistent that Q1 PC component demand is tracking at the
lower end of normal seasonality, suggesting 9%-10% Q/Q unit declines for AMD. We have been
expecting ASPs to rebound from the decline in 4Q on a higher value mix of 64-bit product.
However, it is possible that ASPs could have been up less, creating some downside risk to our MPU
numbers. We are modeling Q1 NOR flash revs down 10% Q/Q (vs historic Q1 average of flat
Q1/Q4), as NOR flash industry unit demand appears seasonal but the pricing environment remains
competitive and we believe Intel has gained additional unit share in the quarter. The recent
preannouncement of SSTI (NC) did nothing to assuage fears that risk to our memory estimates is
likely to the downside.
AMD's TECHNOLOGY LEAD OVER INTC IN MPU's HAS BEEN NARROWED;
IMPROVEMENTS IN LONG-TERM NOR COST STRUCTURE AND NEAR-TERM
INVENTORY MANAGEMENT ARE KEY - We rate AMD IL/N. AMD's exposure to NOR flash
will remain a challenge in H105 given the intense price battle with INTC (OP/N) and negative
seasonality in wireless handset units. AMD is aiming to accelerate its transition from 110nm to
90nm, and from floating gate to Mirrobit flash in order to further improve its NOR flash cost
structure. This improvement will be critical to the long-term profitability of AMD's NOR flash
business, as they compete directly with Intel in this space (AMD had 25% NOR market share in
2004 vs 24% for INTC). However, NOR flash accounts for only 7% of Intel's total revs, so INTC
can continue to be very competitive on price and absorb operating losses, without realizing a similar
negative impact to the overall profit model. In MPU's, AMD and INTC are on similar paths to
dual-core (AMD ahead in server, Intel in client) and INTC has closed the gap in 64-bit computing,
but INTC is ahead of AMD in the race to 65-nm; a definite cost advantage for INTC as dual-core
ramps in H205 and 2006. AMD's Q4 inventory was very high at 107 days, though a significant
portion of this inventory build was due to weak NOR flash sales. If this inventory situation is not
rectified margins will be under pressure in H205. AMD is trading at 34x C'05E EPS, a premium to
both its long-run median multiple of 19x and the group's C'05E 27x.
2) WEEKLY MEMORY MONITOR
NAND flash memory spot prices were up 1.3% M/M on continued moderate supply tightness.
Retail prices continue to decline moderately, down 4.0% M/M. This represents the 5th consecutive
week of M/M spot chip price increases, compared to M/M retail card price declines. See Exhibit 1
for the NAND flash memory table.
3) WEEKLY PRICE PERFORMANCE
Stocks under coverage were up an average of 1% W/W. The best performers in our universe were
AMIS (IL/N), up 7% W/W and AMD(IL/N), up 6% W/W. The worst performers in our universe
were MPWR (IL/N), down 4% W/W, MRVL (OP/N), down 3% W/W, and AGR.A (IL/N), also
down 3% W/W. See Exhibit 2 for the performance of stocks in our coverage universe. |
