A PARADIGM SHIFT
1. THE BIG PICTURE:
U.S. demand for PC microchips for Y2000 could approach 40 million. Worldwide demand could approach 15 million units.
AMD has recently forecast production of 25 million microprocessors for y2000, possibly a conservative estimate, based upon 1999 production in excess of 20 million and the increasing production capacity of the new Dresden fab. The early "successes" achieved by the Athlon signal the likelihood of a steadily increasing ASP for the foreseeable future.
2. THE ATHLON IS A WINNER:
The Athlon was recently awarded the winner of the 1999 Technical Excellence Award by PC magazine. The Athlon was also chosen by Computer Reseller News' Test Centre also as the processor for its Ultimate PC at Comdex.
Both awards, just two of many received, are testimony to the the outstanding technical features and level of performance of the Athlon.
3. EVERYBODY LOVES A WINNER:
Build a better mouse trap at a better price and the world will be at your doorstep. Early indicators suggest that the Athlon is the better mousetrap at the better price. Digestion of this news by the general microcomputer consumer will likely result in an exponential growth rate in Athlon sales for the next two years.
4. THE INFRASTRUCTURE:
Timing is everything and it appears that the shifting of microprocessor production to Dresden could not have been better timed. Availability of "state of the art" production facilities with "unlimited" production capacity for the "state of the art" Athlon microprocessor seems to reflect outstanding management anticipation and judgment. A "not insignificant" byproduct of this production shift to Dresden is the derived increased capacity at the Austin fab for flash bit production which is anticipated to grow 70% sequentially quarter to quarter throughout Y2000.
5. THE FUNDAMENTALS:
The Athlon provides AMD with its invitation to the "big dance", i.e. the higher tier markets. For the first time, the PII and the PIII will have competition from a worthy and formidable opponent. Early indicators suggest that the marketplace has welcomed the Athlon into these higher tier markets. Obviously, the Athlon will favourably impact future AMD ASP's. Given the Athlon's outstanding features, its potential positive impact on ASP's is difficult to overstate. The Athlon is an engineering marvel, the marketplace seems ready and willing and Dresden is poised for production. All systems are go!
A significant positive trend in earnings appears to be underway. EPS losses of $1.17 and $0.72 in 99Q2 and 99Q3 respectively could possibly be eclipsed by a positive EPS in 99Q4 (my conservative guess is a 99Q4 EPS of $0.31). Continuation of this positive earnings trend throughout Y2000 could easily result in an annual EPS well in excess of $2.50, given the Athlon potential and the phenomenal growth potential of the flash segment.
6. THE TECHNICALS:
There exist three primary price hurdles from a technical perspective at $28, $48 and $63. A close above $28 is significant as it marks the end of a 3 year negative price trend and the onset of a new trading range between $28 and $48. As only minor areas of resistance exist at $30, $34 and $38, a test of the upper boundary (i.e . the all time high) at $48 could occur rapidly. A close above the all time high of $48 introduces a new trading range between $48 and $63, the upper boundary of the 5 year trading envelope.
7. A PARADIGM SHIFT:
AMD may be a classic example of "where the old analysis tools no longer apply". The AMD "naysayers" may soon run out of fingers with which to plug the holes in their "negative AMD analysis dikes". With Dresden producing .18 micron and with ever increasing flash bit production at Austin , AMD may well have all its ducks in line, like never before. The dam appears to be verging on bursting, sweeping away the old pessimism and bringing with it the new optimism. The possibility of the "new optimism" brings with it the possibility of new earnings highs. An EPS of $2.50 in Y2000 can be relatively easily rationalized assuming no major hiccups at Dresden and continued increasing market acceptance of the Athlon.
When one considers Intel's current price of $80 and street estimates of $100 for Y2000 based upon expected Y2000 EPS of $2.50, an AMD price of $65 does not seem all that unreasonable given Y2000 potential Athlon sales of 10 million.
A close above $65, in the not too distant future, would confirm breakout of the 5 year trading range and would indeed provide the confirmation that "AMD, with its introduction of the Athlon, is indeed a classic example of a paradigm shift."
P.S. This investor wholeheartedly supports the inclusion of AMD in the WSJ top 20 stocks to own in Y2000 as it is relatively easy to support the assumption that AMD is only in its initial stages of price appreciation. Imminent realization of the GTW rumour should provide another significant bump up in AMD price, only one of what I would expect will be a growing number of good news stories as 1999 winds down and Y2000 unfolds. |
