SSB: expects $0.63 EPS; AMD raised contract price for flash; high speed bin splits
Advanced Micro Devices Inc (AMD)#
AMD: Company Update- CORRECTED 2S (Outperform, Speculative)
Mkt Cap: $3,667.2 mil.
September 28, SUMMARY
2000 * We visited with management before the quiet period and
believe the ramp of the company's Athlon microprocessors
SEMICONDUCTORS remains strong and in line with our unit forecast for 3.6
Jonathan Joseph million Athlon/Durons this 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) 4.5x
P/E (12/01E) 4.4x
TEV/EBITDA (12/00E) NA
TEV/EBITDA (12/01E) NA
Book Value/Share (12/00E) $7.99
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 (9/27/00) $12.00 Current Rating 2S
52-Week Range $23.64-$4.11 Prior Rating 2S
Shares Outstanding(a) 305.6 mil. Current Target Price $50.00
Convertible No Previous Target Price $50.00
EARNINGS PER SHARE
FY ends 1Q 2Q 3Q 4Q Full Year
12/99A Actual ($0.40)A ($0.55)A ($0.36)A $0.21A ($1.10)A
12/00E Current $0.57E $0.60E $0.63E $0.84E $2.64E
Previous $0.57E $0.61E $0.63E $0.84E $2.65E
12/01E Current $0.60E $0.65E $0.71E $0.78E $2.75E
Previous $0.61E $0.66E $0.71E $0.78E $2.75E
12/02E Current NA NA NA NA NA
Previous NA NA NA NA NA
First Call Consensus EPS: 12/00E $1.28; 12/01E $1.28; 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-$44, 2M) until mid next
year. From November through February, AMD plans to 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 believe 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. |
