Tad's replacement making some comments on AMD
cnbc.com
Jun 12 2000 4:00AM ET
Pick of the Week: AMD
By Frances Hong
CNBC.com Writer
WHO: Dan Scovel, analyst at Needham & Co.
STOCK PICK: Advanced Micro Devices Inc. {AMD}
CURRENT PRICE: $88 9/16
12-MONTH PRICE TARGET: $115
VALUE-ADDED BENEFITS: Advanced Micro Devices Inc. has a new manufacturing facility in Germany, and its new Athlon chip is expected to give Intel Corp. a run for its money.
It was not too long ago that investors and Wall Street had all but given up on Advanced Micro Devices Inc., the perennial runner-up to chip giant Intel Corp. {INTC}
Beset by manufacturing problems, missed earnings and mounting earnings losses, AMD?s shares remained flat and hovered in the $16 range for what seemed like an eternity.
But for those investors who kept the faith, their loyalty is finally paying off -- in a very big way.
Check out this chip maker?s performance in just the past six months.
To be sure, the company, which has surprised Intel in the lower-end chip market, has grabbed a substantial share of the sub-$1,000 PC market.
That is Scovel says AMD is his top chip pick, with a "buy" rating and a 12-month price target of 115.
"At this point, I like just about everything with this story," Scovel says. "The story might be getting long in the tooth, but things are still going well for them. There?s room for the company to surprise on the upside."
And what about AMD?s nagging manufacturing difficulties? Scovel says that problem has all but disappeared. The company?s recently completed $2 billion fab in Germany is up and running, which means the chipster is no longer dependent on its Austin, Texas, plant.
One question pops to mind, however. Will the cost of the new fab have any effect on earnings going forward? According to Scovel, AMD, through creative financing, has paid for the facility and should be deriving attractive revenue and profits from this point on.
"The Athlon chip is better matched with the new manufacturing process and that makes us more confident about [AMD?s] manufacturing," he says. "We haven?t seen any manufacturing problems to date, and the ramp-up has been pretty steep."
In fact, the company expects to double its output over the next few quarters. Production for the second quarter is about 1.8 million units and will continue to double in each sequential quarter.
In terms of earnings, Scovel is forecasting $5.65 for 2000 and $5.79 for 2001. Revenue should hit $5 billion in 2000, much higher than the $2.9 billion posted in 1999. In 2001, the analyst estimates revenue of about $6.4 billion.
From a marketing, product and manufacturing perspective, all things are go. But Scovel stresses that the challenge for AMD remains consistent execution. "There has been a significant product ramp-up, and anytime you?re experiencing significant changes, there are always opportunities for missteps."
Now that AMD has regained its composure and the confidence of investors once again, can it take market share from Intel?
AMD?s goal, Scovel says, is to have 30 percent of the worldwide PC market by the end of 2001. Currently, it holds less than 10 percent.
Of course, credit must also be given to the robust cycle the semiconductor industry has been experiencing since late last year. Scovel says the industry?s revenue forecast is for 31 percent growth this year, which amounts to about $195 billion worldwide.
"Forecasting in this business is a losers? game," he says. "The accuracy is nonexistent. In boom cycles, it?s always underestimated, and bear cycles are always overestimated."
It is a boom cycle now, which means an upside surprise should be no surprise. |
