AMD shares rise on flash speculation
By Chris Kraeuter, CBS.MarketWatch.com
Last Update: 4:42 PM ET March 19, 2003
SUNNYVALE, Calif. (CBS.MW) -- Shares of Advanced Micro Devices bucked the market's downward trend as an investment bank analyst said the chipmaker will announce changes next week in its flash memory joint venture with Fujitsu.
AMD shares rose 4.9 percent to $6.87 -- another two-month high. Shares have increased six sessions out of the past seven for a total gain of 21 percent.
Analyst Tim Mahon with Credit Suisse First Boston expects AMD to spin off its flash operations into a new company that includes all of AMD's and Fujitsu's flash operations, as well as the assets of the joint venture called FASL JV. AMD will hold 60 percent of the new entity and Fujitsu will hold the other 40 percent, Mahon wrote in a note to clients.
FASL, which stands for Fujitsu AMD Semiconductor Limited, was formed in 1993 and now consists of three chipmaking plants in Japan. The joint venture, owned 50-50 by AMD and Fujitsu, generated sales of $854 million in 2002 and AMD's share of FASL's net profit was $6.2 million.
AMD declined to comment on the report. "We are constantly looking for ways to improve the nature and value of the relationships we have and Fujitsu is no different," said AMD spokesman Morris Denton. "At this time, we don't have anything to announce."
Analyst Scott Randall with Soundview Technology said AMD has been seeking ways to reduce its cost structure and that there has been a fair amount of speculation recently about changes in the flash memory agreement. He said AMD would likely follow through on a chance to gain more leverage over its flash operations while at the same time reducing its overall fixed costs.
"The primary assumption is that AMD will continue to focus on those actions that maintain the focus on microprocessors and that all other businesses take a back seat to that," Randall said.
Mahon said AMD would benefit from higher revenue from flash memory, which he expects to be the fastest growing portion of the chip industry this year, and that AMD would also gain from the added control. Further, by merging the test, assembly and packaging operations, Mahon said AMD would get added efficiencies of scale.
He said a move such as this would be positive for AMD and that even though there are still risks for investors, most are already reflected in the current stock price. He upgraded the stock to "neutral" from "underperform" on Wednesday.
"We believe 'underweighting' AMD is the wrong call from here given our belief that the spinout will be viewed favorably and that AMD will have the highest exposure to high density flash memory of any name in our universe," said Mahon.
Last year, AMD ranked fourth with 10 percent market share and Fujitsu ranked fifth with 9 percent market share in terms of flash memory sales, according to IC Insights. Intel (INTC: news, chart) controlled the market, though, garnering 27 percent of all flash sales.
Flash memory chips retain their data when power is lost and are used in handheld electronic devices like cell phones, digital cameras and digital music players.
Chris Kraeuter is a reporter for CBS.MarketWatch.com in San Francisco. |
