<font color=red>AMD: Company update
08:26pm EDT 27-Sep-00 Salomon Smith Barney (Jonathan Joseph 415-955-4998) AMD
AMD: Company update
SALOMON SMITH BARNEY
Advanced Micro Devices Inc (AMD)#
AMD: Company update 2S (Outperform, Speculative)
Mkt Cap: $3,743.6 mil.
September 27, 2000 SUMMARY
* We visited with management before the quiet period
SEMICONDUCTORS and believe the ramp of the company's Athlon
Jonathan Joseph microprocessors remains strong and in line with our
415-955-4998 unit forecast for 3.6 million Athlon/Durons this
jonathan.joseph@ssmb.com quarter and see 6.5 million units achievable in Q4.
* The company does not see any manufacturing or
infrastructure constraints, with output at the
Dresden fab still going very smoothly and the volume
of Athlon-compatible chipsets and motherboards
rising to meet customer needs.
* Demand for the company's Flash memory also remains
very strong on a unit basis. AMD apparently raised
contract prices slightly in Q3, may do so again in
Q4, and is booked out for the foreseeable future.
* There are no changes to our current estimates,
though given a slower than anticipated PC build this
season, we would not expect much upside to consensus
estimates this quarter and next.
FUNDAMENTALS
P/E (12/00E) 4.6x
P/E (12/01E) 4.5x
TEV/EBITDA (12/00E) NA
TEV/EBITDA (12/01E) NA
Book Value/Share (12/00E) $15.99
Price/Book Value 1.5x
Dividend/Yield (12/00E) $0.00/0.0%
Revenue (12/00E) $5,015.1 mil.
Proj. Long-Term EPS Growth 15%
ROE (12/00E) NA
Long-Term Debt to Capital(a) 37.8%
AMD is in the S&P 500(R) Index.
(a) Data as of most recent quarter
SHARE DATA . RECOMMENDATION
Price (9/26/00) $24.50 Current Rating 2S
52-Week Range $47.28-$8.22 Prior Rating 2S
Shares Outstanding(a) 152.8 mil. Current Target Price $100.00
Convertible No Previous Target Price $100.00
EARNINGS PER SHARE
FY ends 1Q 2Q 3Q 4Q Full Year
12/99A Actual ($0.81)A ($1.10)A ($0.72)A $0.43A ($2.20)A
12/00E Current $1.15A $1.21A $1.25E $1.68E $5.29E
Previous $1.15A $1.21A $1.25E $1.68E $5.29E
12/01E Current $1.21E $1.31E $1.42E $1.56E $5.50E
Previous $1.21E $1.31E $1.42E $1.56E $5.50E
12/02E Current NA NA NA NA NA
Previous NA NA NA NA NA
First Call Consensus EPS: 12/00E $2.56; 12/01E $2.51; 12/02E NA
DRESDEN RAMP GOING VERY SMOOTHLY
Both the company and its customers continue to report the ramp of its copper-
based microprocessors out of the Dresden, Germany fab remains very smooth. In
fact, the company reports that yields and "bin splits" at the new fab are often
running ahead of the yields at the company's aluminum-process based Austin Fab
25. We believe AMD's average speed distribution, at slightly over 800MHz, is
currently running ahead of Intel's, which we figure is about 750MHz. Despite
hiccups the company has suffered in rolling out several past generations, AMD
believes it has closed the manufacturing gap with Intel from a six year deficit
in 1991 with its introduction of the Am386 to take a lead in the K7 generation.
ALLOWING HIGH-SPEED BIN SPLITS
Intel is shipping 1GHz PIIIs, but not in the kinds of volumes, at least as a
percentage of total unit output, that AMD is putting out. We figure AMD is
producing on a quarterly run rate at least one million 1GHz-plus units
currently, which is about 15% of output. On the other hand, that speed grade it
is probably less than 5% of Intel's total output. The problem is mostly
architectural, with the PIII is at the upper limits of its performance
envelope, while the Athlon family is just hitting its stride. In addition, we
do not expect significant volumes of Intel's (INTC, 2M) until mid next year.
From November through February, AMD will introduce five new products based on
improved microcode and enhanced features. At the high end (as yet, the order of
introduction has not been announced) will be Mustang, a slightly improved T-
bird core with up to 2MB of SRAM cache on board. This will be AMD's server-
based Xeon-equivalent. Next down the scale will come the Palomino desktop, the
Mustang core but with less on-board cache. In the value space will be Morgan, a
Duron replacement with slightly less cache than its bretheren. Finally, the
company will introduce mobile versions of Palomino and Morgan, both with Power
Now, a dynamic power management technology. The notebook offerings will be
critical for AMD as we beleive it has been ceding market share in recent months
to Intel as the K6-2 became stopped out at about 550MHz. AMD believes it
captured over 50% of the notebook market with the low-power K6-2 last year.
FLASH RAMP IN LINE, DEMAND REMAINS STRONG.
The company remains very upbeat about its Flash prospects, with virtually all
of its forecast output for next year already spoken for. Unit demand remains
very strong, and the company actually raised contract prices slightly this
quarter and may do so again in Q4. Like Intel, AMD holds about 30% of the
market and provides the most comprehensive product offering in the market,
ranging from 1Mb at the low end to 32Mb at the high end. Flash spot prices
remain well above contract prices, though they have been easing recently, we
believe, as supply improves. Both we and the company expect Flash bit demand to
grow at least 90% annually for then next several years, though we expect Intel,
AMD, SST and most other major producers will also increase their output by at
least that amount this year, and perhaps next. As part of the FASL joint
venture with Fujitsu, AMD plans to increase its Flash capacity by 70% this year
and 100% per year for the next two years. |
