"SEMICONDUCTOR DEVICES: On Wednesday after the close, Gateway (GTW, rated
Strong Buy by Kimberly Alexy) preannounced its 4Q99 citing Intel's inability
to consistently deliver PIII 450 MHz and Celeron 400 MHz processors as playing
a substantial role in the company's inability to hit the quarter's estimates.
Gateway suffered significant exposure to Intel's supply shortfall as it used
the microprocessor behemoth as a sole source. In the conference call is was
made quite clear that announcements would be made in the near future stating
Gateway's intention of using other sources - presumably AMD.
We believe that AMD could report significant upside in 4Q99 in terms of
revenue and EPS. The company could report revenues significantly above $850 million 
(vs our $800 million estimate) and EPS north of $0.10 for 4Q99. We
believe AMD experienced solid unit demand for its Athlon processors paired
with healthy ASPs. Strong flash memory demand should also contribute
meaningfully in 4Q99, though we would be cautious of potential inventory build
of low-density flash memory in the supply chain that could be flushed out in
1Q00. The significance of the Gateway pre-announcement to AMD is that it
should help AMD to begin to penetrate the corporate market. It has been
anticipated for approximately a month that major PC-OEMs, including Gateway,
would begin to shift some business AMD's way.
There is no doubt that Intel has had its fair share of difficulties on the
execution front in 4Q99, though we are rather surprised that the processor
giant would willingly let a strategic customer like Gateway suffer to the
degree that it did in 4Q99. The processors in question are not on its newer
0.18 micron Coppermine technology, so we would doubt that yield-related issues
here are at fault. We are also cautious as we are entering Q1 where we expect
fairly weak demand in consumer and do not expect corporate to pick-up until
the middle or the end of the quarter. However, we doubt much resolution will
come of this until the company's 4Q99 earnings conference call which is
scheduled for January 13 th . (Hans Mosesmann)"