<font color=red>sounds like Osha is positive about amd prospects
10:21am EST 10-Nov-00 Merrill Lynch (J.Osha (1) 415 676-3510) AMD
ADVANCED MICRO:Reassurance on Flash Business
ML++ML++ML Merrill Lynch Global Securities Research ML++ML++ML
ADVANCED MICRO DEVICES (AMD/NYSE)
Reassurance on Flash Business
Joseph Osha (1) 415 676-3510
ACCUMULATE* Long Term: BUY
Reason for Report: Company Update
Investment Highlights:
o We attended AMD's Analyst meeting yesterday. Management presented on both
of its largest business segments, flash memory and microprocessors. Most of
the attention, however, was centered around AMD's flash business.
o AMD staunchly defended its belief in strong end market demand for flash
and suggested that its business strength will continue for several years. We
believe that increasing density and tight supply will continue to increase ASPs
through 2001.
o While we believe that AMD continues to enjoy good performance in its
microprocessor family - shipping 28 million units in 2000 and selling out of
both Athlon and Duron processors this quarter - the company has confirmed that
overall PC demand this quarter has been disappointing.
o We believe that the company is on track to deliver $4.8 billion in
revenues for 2000. Our estimate are unchanged, $0.74 for 4Q, $2.56 for 2000.
Our recommendation is an Accumulate/Buy.
Price: $21.00
Estimates (Dec) 1999A 2000E 2001E
EPS: $d1.10 $2.56 $2.66
P/E: NM 8.2x 7.9x
EPS Change (YoY): NM 3.9%
Consensus EPS: $2.51 $2.42
(First Call: 07-Nov-2000)
Q4 EPS (Dec): $d0.36 $0.74
Cash Flow/Share: $1.45 $3.92 $4.48
Price/Cash Flow: 14.5x 5.4x 4.7x
Dividend Rate: Nil Nil Nil
Dividend Yield: Nil Nil Nil
Opinion & Financial Data
Investment Opinion: C-2-1-9
Mkt. Value / Shares Outstanding (mn): $7,413 / 353
Book Value/Share (Sep-2000): $8.22
Price/Book Ratio: 2.6x
ROE 2000E Average: 30.0%
LT Liability % of Capital: 26.0%
Est. 5 Year EPS Growth: 25.0%
Stock Data
52-Week Range: $48.50-$12.44
Symbol / Exchange: AMD / NYSE
Options: Pacific
Institutional Ownership-Spectrum: 56.4%
Brokers Covering (First Call): 16
*Intermediate term opinion last changed on 05-Apr-2000.
For full investment opinion definitions, see footnotes.
We attended AMD's Analyst meeting yesterday. We believe that the company is on
track to deliver $4.8 billion in revenues for 2000. Management presented on
both of its largest business segments, flash memory and microprocessors. Most
of the attention, however, was centered around AMD's flash business.
Our estimate are unchanged, $0.74 for 4Q, $2.56 for 2000. Our recommendation
is an Accumulate/Buy.
Reassurance on the flash business
With much attention focused on the future prospects of the phenomenally growing
flash industry, AMD staunchly defended its belief in strong end market demand
for flash and suggested that its business strength will continue for several
years. We believe that increasing density and tight supply will continue to
increase ASPs through 2001. AMD's management believes that cellular handset
shipments should number 575 million next year and that the supply/demand
imbalance will continue into 2002. The company did mention a few instances
where customers pushed out flash orders. However, we do not believe that these
examples were indicative of general market demand and note that AMD was able to
resell the products to other customers.
Building sufficient capacity to meet demand continues to be the main focus for
the company. The company continues to add significant capacity with its Fujitsu
JV. JV2 fully ramped flash production during this year, while its Iwate and
Gresham fabs continue to ramp. The company's JV3 facility should bring
additional capacity in 2001. AMD expects to increase flash capacity by 77% and
ship 350mm units next year. We expect demand for flash will grow over 100%
YoY.
Fourth quarter lags; the return to normalcy in 2001 for PCs?
While we believe that AMD continues to enjoy good performance in its
microprocessor family - shipping 28 million units in 2000 and selling out of
both Athlon and Duron processors this quarter - the company has confirmed that
overall PC demand this quarter has been disappointing. We have heard that
excess inventory levels in the third quarter have spilled into the December
quarter throughout industry. The fourth quarter's typically strong Christmas
sales have yet to materialize. After this tough second half for the PC
industry, AMD believes that next year should follow more "normal" seasonality,
with PC units shipments growing in the mid teens YoY and microprocessor unit
shipments growing in the high teens YoY.
The company's MPU growth prospects in 2001 are helped out by several factors in
its roadmap. Not only will AMD have its new line-up of processors in place,
but also it will have the core logic platforms for its processors. DDR
chipsets for the high-end are already sampling and will begin to ship in volume
early next year, while the low-end UMA chipsets should be available by then, as
well.
We believe the company's assertions that its MPU ASPs - currently $90 - should
remain around the same levels next year. We expect the sales mix to shift to
more high-end processors, which should firm up ASPs.
Microprocessor Roadmap into 2002
AMD revealed more details about its microprocessor product and technology
roadmap into 2002. In 1H01, we expect to see upgraded versions of its Athlon
processors. Palamino, the high-end processor, will reach 1.5 GHz by 2Q01 and
will be manufactured on 0.13 micron process by 4Q01. The low-end version,
Morgan, will trail the Palamino by a quarter. The release of mobile versions
of these processors will fill an existing gap in AMD's line up in the mobile
space. With the Palamino and its Hammer family, AMD will have the ability to
enter the low-end volume server/ workstation market. However, we believe that
AMD's penetration into the market will take time, as this is an entirely new
market for the company.
Later in 2001, AMD expects to sample its Hammer family and ship in volume by
1Q02. The Clawhammer will target the mainstream market of 1-2 way servers,
workstations, performance desktop and mobile products, while the Sledgehammer
line will target the higher-end market including 4-8 way servers. We believe
that AMD will have the capacity to bring on these new products as its Dresden
fab will ramp to full production next year with SOI and 0.13 micron process
capabilities |
