Must Read: This Dow Jones News Story Got Q2 facts right and note Niles' comment:
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AMD Exec: No Evidence Of Loosening In Flash Memory Mkt
Dow Jones Newswires
By Rick Jurgens
PALO ALTO, Calif. -- Advanced Micro Devices Inc. (AMD), posted second-quarter net income of $1.21 a share, ahead of the analysts' consensus of $1.14, and continued on the road back from the brink of extinction.
Chief Executive Jerry Sanders acknowledged in response to a conference call question that fears remain that industry leader Intel Inc. (INTC) will try to crush AMD by cutting prices. "We've demonstrated that we're reasonably uncrushable," he said.
A year ago the Sunnyvale, Calif., semiconductor maker posted a net loss of $1.10 a share, excluding special items. Revenue in the just-ended second quarter was $1.17 billion, up from $595.1 million a year ago.
AMD sold 6.3 million microprocessors during the latest quarter, including 1.8 million of its latest-generation Athlon and Duron processors. AMD could have sold "a little bit more than that" if not for limited availability of chipsets and printed circuit boards, Chief Operating Officer Hector Ruiz told Dow Jones.
AMD's "aggressive" target is to sell 3.6 million Athlon and Duron chips in the third quarter and 7.2 million in the fourth quarter, Ruiz said. Chipset and board supplies should be adequate to meet those goals, he said. The targets for total processor sales are 7 million in the third quarter and 9 million in the fourth quarter, he said. Older-generation chips will continued to be produced and available through the first half of 2001, he said.
Demand for personal computers was "pretty healthy" among consumers during the second quarter, although business demand wasn't as strong, Ruiz said. AMD expects annual unit sales of computers to continue to increase 15% to 20%, said Benjamin Anixter, a vice president.
AMD's average selling price for microprocessors was up 7% in the second quarter compared to the first quarter, somewhere in the "low $90s," executives said in the conference call, although they declined to state a specific dollar figure. AMD's goal is to boost the average selling price above $100 during the fourth quarter, Ruiz said in the call.
AMD finished the quarter with about $1.1 billion in cash, and can move to reduce its debt, including through conversions of debt into stock, Sanders said. "A year from now we could be debt free," he said, noting that he expected some 5% debt guaranteed by the German government to finance development of the company's new fabrication plant in Dresden. That debt is on such favorable terms that AMD is unlikely to want to retire it, he said.
There has been no evidence of loosening in the market for flash memory products, and AMD has already sold out its third-quarter output of flash products, executives said.
AMD also announced a two-for-one stock split effective Aug. 21.
AMD's stock closed Wednesday at 90 1/4, down 3/4 or 0.8%, on Nasdaq composite volume of 6.1 million shares. Average daily volume is 4.8 million shares.
Two analysts said that the net income posted by AMD actually understated the extent to which company's second-quarter performance had outdistanced estimates. That's because the estimates assumed that AMD wouldn't pay taxes and, as Lehman Brothers Inc. analyst Dan Niles put it, "they made so much money they're going to have to pay taxes now."
Without taxes, AMD would have posted net operating income of $1.51 a share, beating the consensus estimate by 37 cents a share, the company said.
That added up, according to Niles, to "a very good quarter and an extremely good outlook" for AMD. He said that on July 10 he increased his price target on the stock to $110 and that he would increase the target again Thursday. He said he also planned to hike his earnings estimates "significantly," including raising his estimate for 2001 to above $5 a share from $4.70.
Drew Peck, an SG Cowen & Co. analyst, also said he planned to raise his estimates but was less sanguine about AMD's long-term prospects. "I still think next year is going to be a much tougher year" than this year, he said.
At issue, he said, is microprocessor output that is growing more rapidly than demand from computer makers. Both AMD and Intel expect unit output to be up 50% in the second half of 2000 compared with the first half, while optimistic estimates see personal computer sales up only 15%, he noted.
Peck also expects some short-term pressure on the stock price sparked by AMD's failure to meet some institutional investors' expectations that second-quarter revenue numbers would exceed estimates by a wide margin. The revenue figure matched his estimate of $1.17 billion and "that's not good enough," he said. EarningsWhispers.com saw AMD posting revenue above $1.2 billion and net income without taxes of $1.29 a share.
While the company beat earnings estimates by a wide margin, some institutional investors are likely to be selling on fears that revenue growth isn't strong enough to continue to deliver strong earnings growth, Peck said.
That could create a short-term buying opportunity for traders since AMD should post a strong third quarter, he said.
-By Rick Jurgens, Dow Jones Newswires; 650-496-1367;
richard.jurgens@dowjones.com
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