ML:Strong demand for Athlon, Duron, gain mkt shr w/ Palamino(hi-end),Morgan(mobile), Mustang (server/wkstn)
Read it and weep !!
Excerpts from Merrill Lynch 7/17/00
Investment Highlights:
• Yesterday we hosted a virtual visit with the
management of AMD.
• We believe that the company’s momentum
from last Q will continue into 3Q. AMD is
well on track to deliver a strong year, with
record sales of $5 bn and operating income of
$1 bn. We reiterate our Accumulate /Buy
recommendation for the company. Our 12-18
price objective is $150.
Fundamental Highlights:
• We believe the company’s leading presence in
a robust market for flash memory and the
successful ramp of the new Athlon MPUs are
the main drivers of growth for the company.
• We think AMD’s success with transitioning its
customers to the new Athlons is attributable to
well-executed and timely capacity expansion.
• The company shows no signs of a slowdown in
the flash market through at least 2001. The
company will continue to sell all of its supply,
most of which is allocated to top contract
customers. Given the expected 100% YoY
growth for the entire flash industry, we believe
AMD’s capacity expansion will not result in
oversupply next year.
Momentum continues through 2000
Based on yesterday’s virtual visit with the management of
AMD, we believe that the company’s momentum from the
strong 2Q will continue into 3Q. AMD is well on-track to
deliver a strong year, with record sales of $5 bn and
operating income of $1 bn.
The company’s leading presence in a robust market for
flash memory and the successful ramp of the new Athlons
are the main drivers of growth for the company.
We reiterate our Accumulate /Buy recommendation for the
company.
Further push of the Athlon line
The company has indicated that its processor business is
on target with its expectations to deliver 28mm units in
2000. Aside from the seasonal factors, which will
inevitably boost its consumer market, we believe that the
releases of Windows 2000 should boost MPU sales in the
corporate market in 2H00.
As we had started to see in 2Q, production of AMD’s new
K7 lines continues to go well. For the rest of the year, we
expect to see an almost complete K7 processor product
mix; by the end of the year 80-90% of the processor units
shipped will be from the new Athlon lines. And while we
do see strong demand for the high-end Thunderbird,
demand for the low-end Duron is even more robust.
AMD’s success with transitioning its customers to the new
Athlons is attributable to well-executed and timely
capacity expansion. MPU production has rolled over
completely from the older version of K7 to the newer
version of Athlon with on-chip L2 cache [TBird]. At its Dresden
Fab 30, AMD is currently at 20% of capacity or 1,000
wafers a week; this figure should increase to 50% by the
end of the year and 100% or 5,000 wafers a week by the
end of 2001. Interestingly, AMD has indicated to us that it
is seeing yields at Dresden comparable to conventional
CMOS yields at Austin’s Fab 25.
We also see further room for AMD to gain MPU market
share with its Athlon offerings in the mobile PC and
server/workstation markets. By the end of the year, we
can expect to see K7 core products code-named Palamino
and Morgan in the high-end and value mobile space,
respectively, and a Mustang product for the
server/workstation market. AMD is also aggressively
staying in the speed race against Intel, with plans to ramp
speeds to 1.5 GHz by the start of next year.
No slowdown for flash - at least through 2001
Through its JV with Fujitsu, we believe that AMD will
maintain its 30% market share lead in flash in 2000. As
AMD is now negotiating its contracts for 2001 flash orders,
the company has indicated that it sees no signs of a
slowdown in the market through at least 2001. The
company will continue to sell everything it can make, most
of which is allocated to its top contract customers. We
should see 10% sequential growth in AMD’s flash business
for this and next Q. While the projections for the general
industry are healthy, we think that AMD has further
protection against changes in customer demand for flash:
1. Established relationships with top contract clients
provide more stability. AMD reserves close to 100%
of its supply for its top contract customers, which now
number close to 25. In turn for providing a stable
supply at a multi-year fixed price, customers must be
committed to their orders or are faced with a penalty.
Visibility through 2001 is good; we believe that
company will continue to sell-out of its supply.
2. Well-diversified flash product offerings attract broad
customer base. Aside from the 35% of its supply
which goes to handset makers, AMD’s supply
allocation to any other segments is not greater than
20%. Also, it offers the widest selection of flash
products to a diverse customer base than any
competitor.
3. Cap ex spending will only keep up with demand
growth. In partnership with Fujitsu, AMD has
invested $1.2bn in cap ex for 2000. Given the
expected 100% YoY growth for the entire flash
industry, we believe AMD’s capacity expansion will
not result in over-supply next year, but will allow it to
just keep apace with phenomenal demand. |
