Dave:
Couldn't get through to SI for some reason all day yesterday, but here are my thoughts, a day late, on your thought prokoking questions.
Frame of Reference: A $3 billion tech company with a growth rate of 25% and superlative forward looking prospects would normally command a p/e multiple of 25 or more…For a company trading at $25, that would imply annual earnings of $1.00.
Inasmuch as AMD's Q1+Q2 eps of $1.15 ($0.55 and $0.60) already exceeds $1.00, one might conclude that a disaster scenario for AMD is factored into its $25 price, a disaster scenario that the market is expecting to unravel in Q3 and Q4 if annual earnings are not to exceed $1.00…For such a disaster scenario to surface, Q3 earnings would have to be significantly lower than Q2's of $0.60…and for that to occur, Athy shipments would have to level off at Q2 quantities of 1.8 million and ASP's would have to decline considerably…Obviously the market is wrong…
Given Athy incremental growth of 400,000 units in Q1 (from 800,000 to 1.2 million) and incremental growth of 600,000 units in Q2 (from 1.2 million to 1.8 million), which resulted in pre-tax earnings of $0.57 and $0.75 respectively, obviously incremental growth of 1.8 million Athy units (to 3.6 million units, a 300% quarterly incremental Athy growth rate) would be sensational,outstanding even, particularly in light of INTC's recently announced apparent difficulties in Q3, and could result in pretax earnings well in excess of $1.00…an event that would provide escape velocity for the stock price…
It is within the above context that I would conclude that the current market is factoring into AMD's current price of $25 a significant shortfall in AMD's target for incremental Athy shipments in Q3 of 1.8 million units (a 300% gain in incremental shipments). The current market seems to be suggesting that Q3 incremental Athys will not significantly exceed Q1's of 400,000 and Q2's of 600,000 and given the overall perception of some analysts of a declining global market demand, seems to be pointing towards Q3 incrementals of 800,000 at tops or 2.6 million Q3 Athys in total…
So, in answer to your questions, any Q3 Athy number below 2.6 million, might well support a lowere eps than Q2's $0.60 and a leveling off in AMD price around the current $25 level…Contrarily, any number above 3 million (i.e increment of 1.2 million Athys) should generate for the 4th successive quarter record earnings and some significant AMD price strength…If AMD meets its 3.6 million target for a phenomenal incremental increase of 1.8 million Athy units and sticks with the Q4 forward guidance target of 7.2 million, then fasten your seatbelt…Outstanding profitability for the foreseeable future would be intimated and an instant price revaluation would likely take place on October 12… |
