Erika Klauer's update on AMD & some other semi's (courtesy Albert)
OVERALL INDUSTRY:
* Revenues are likely to accelerate throughout 2000 and 2001, led by increased
average selling prices and increased output enabled by line width reductions,
additional production lines, and increased efficiencies. We still expect total
semiconductor sales growth to total at least 32% in 2000 and another 30% in
2001.
* We believe semiconductor companies' valuations are attractive. Most
companies are currently trading at valuations significantly below their
projected 3-year growth rates. Historically, these stock valuations tend to be
at parity with their growth rates. With EPS estimates remaining conservative,
in our opinion, this valuation-to-growth discount may actually be greater than
investors currently appreciate.
ON LONGEVITY OF THE CYCLE
We are still in the middle of the typical profitability cycle for semiconductor
companies. The average gross margin of 14 semiconductor companies troughed
around 43% and is now at 49%. However, the peak has historically been at
56%-58%. Therefore, we still think we have a long way to go before peak
earnings are achieved. We suspect that peak earnings should occur sometime in
the first half of 2002, when most of the 12-inch wafer plants begin to come
online.
ON AMD
Advanced Micro Devices (AMD-BUY-$85 3/4)
Advanced Micro Devices should report a great second quarter on July 19 and
provide positive guidance for 2H00. We currently project sales of $1.15
billion, which is nearly double the year-ago level. We also project earnings
per share of $1.25, which compares with a loss of $1.30 a year ago. The driver
behind the remarkable turnaround is the microprocessor business. We believe
that total units this quarter are likely to come in the 6.3 million-6.7 million
range. We estimate Athlons should total about 1.8 million units this quarter.
This should help to boost overall average selling prices. AMD is not only
benefiting from a richer mix, but the overall environment for processor average
selling prices is quite strong, given capacity limitations industry-wide. In
addition, AMD is working hard to ramp up its Dresden facility, which we believe
the company is achieving with good success. Meanwhile, AMD is also enjoying
strong demand for its flash memory parts with strong sequential unit growth and
upward trends in pricing. The combination of these dynamics should enable AMD
to post a better-than-expected quarter. We also expect that AMD should be
quite positive in guidance, given the strong ramp of its Dresden facility,
richer mix of higher-end processors, upward trends in pricing in processors and
flash, and low inventories of products in both the distribution and OEM level.
We maintain our BUY recommendation and EPS estimates of $5.25 for 2000 and
$5.40 for 2001. Our 12-month target remains $135, or 25x our 2001 EPS estimate.
NOTE: these eps estimates and price target are actually unchanged from a 5/25 full report.
ON INTEL
Intel (INTC-STRONG BUY-$125)
Intel has been a controversial name this quarter, though we expect that the
company is poised to report excellent second-quarter results. Many investors
were disappointed by the company's first-quarter performance, but we do not
think that sentiment will be repeated this quarter....
It is clear that Intel is in a good position to improve its supply to the
market and the market is ready to absorb any additional supply Intel offers.
For the second quarter, we project total sales to reach $8.15 billion, which
represents a 20% increase from year-ago levels. We would expect a 2%
sequential improvement in total units shipped, which is meaningful, given that
the mix will include more advanced processors with larger die sizes. This
richer mix should enable a modest improvement in overall average selling prices
as well. When Intel reports 2Q00 results on July 18, we expect that EPS should
total $0.74, which compares with the consensus of $0.71. We also look for the
company to provide a robust product road map, a strong demand backdrop, and
positive guidance for the future, concentrating investors on newfound
confidence in the Intel's ability to meet demand.
We are maintaining our 2000 and 2001 EPS estimates of $3.10 and $3.70,
respectively. In addition, we maintain our 12-month stock price target of
$167, or 45x our 2001 EPS estimate. Our rating on the shares of Intel is
STRONG BUY.
Hmmm, lets see.
AMD with a 2001 estimate of $5.40 is selling at 83 and gets a price target of $135. It's selling at 61% of its price target and gets a BUY rating.
INTC with a 2001 estimate of $3.70 is selling at 126 and gets a price target of $167. It's selling at 76% of its price target and gets a STRONG BUY rating.
Petz |
