To: John Fowler who wrote (22283)
From: dhellman Tuesday, December 12, 2000 10:24 AM ET
Reply # of 22557
Research from Smok'n Joe Osha: Preannouncement is no big surprise
Investment Highlights:
• AMD has announced that it expects fourth quarter revenues to be flat sequentially. Poor PC microprocessor sales from weak PC demand - especially in the U.S. retail market -is
the main culprit for the shortfall.
• We have reduced revenues by $216 million, down to $1.2 billion. Our quarter EPS is now $0.52 from $0.74; our 2000 EPS is $2.34 versus $2.56. We left our 2001 numbers unchanged.
Fundamental Highlights:
• We are not too surprised by AMD’s announcement, and do not expect the adjustment to numbers to impact the stock
negatively at this point.
• Given the fact that AMD’s product lineup at the low end of the market is more competitive than Intel’s, we expect to see market share gains in the first part of next year.
• We reiterate our intermediate-term
Accumulate and long-term Buy recommendations – we regard AMD as a more attractive opportunity than Intel (INTC;
B-2-2-7; $37.44) at the current price, particularly for the long term.
[Page Deux]
Another one bites the dust…
News that PC demand has weakened this quarter has
reverberated through the supply chain. AMD is the latest
victim, although the magnitude of the pre-announcement
was somewhat less than what we had suspected.
AMD has announced that it expects fourth quarter
revenues to be flat sequentially. Poor PC microprocessor
sales from weak PC demand - especially in the U.S. retail
market - is the main culprit for the shortfall. We believe
that AMD’s unit shipments will be flat sequentially; we
estimate shipments at 6,900 million units, with the
reduction in numbers coming from K7 unit shipments.
In addition to slack demand, the delay of the UMA chipset
from VIA has limited the number of Durons AMD had
projected to ship this quarter. Having to ship Duron parts
on motherboards without the more integrated chipset has
left AMD with a cost disadvantage relative to the Intel
Celeron and 815e chipset. Given the fact that AMD knew
about the problem at the beginning of the quarter, we
doubt that much of the additional downside to numbers has
come from the chipset issue, but it certainly has not
helped.
Flash will still deliver
We believe that AMD’s flash business – which we expect
will account for 34% of revenues in 2000 - is still healthy
and will grow 68% YoY. Because of its long-term
contracts, which comprise 85% of its flash revenues, the
company has good visibility through 2001. Our checks
indicate that AMD is almost completely booked through
2001. That visibility will almost certainly come in at some
point, but it hasn’t happened yet.
Lowering Estimates
We have reduced revenues by $216 million, down to $1.2
billion. We’ve also cut gross margins to 45.4%. Our
quarter EPS is now $0.52 from $0.74; our 2000 EPS is
$2.34 versus $2.56. We left our 2001 numbers unchanged.
At 6.5x year-forward earnings, it would appear that much
of the bad news has been factored into AMD’s stock
already. More importantly, though, we continue to believe
that AMD is poised to take market share away from Intel
in the rapidly growing value segment of the PC MPU
market in the coming quarters. As the chipset advantage
dissipates, so should Intel’s Celeron advantage – the
processor itself is not capable of staying with the roadmap
that AMD can offer with Duron. At the same time, Intel
will be hard-pushed to discount its mainline PIII products
to compete with Duron if it wants to hold the line on gross
margin in 2001. We think that AMD is a reasonable
investment at this price, and we also regard the stock as
more attractive than Intel, particularly for the long term.
Table 1 AMD Income Statement Summary
($mill/%) Q199 Q299 Q399 Q499 Q100 Q200 Q300 Q400E FY99 FY00E FY01E
Revenues 631.6 595.1 662.2 968.7 1,092.00 1,170.40 1,206.50 1,202.00 2,857.60 4,671.00 6,386.70
Cost of Sales 450.4 458.3 474.1 581.5 605.8 612.6 639 657.7 1,964.40 2,515.00 3,518.80
Gross Profit 181.2 136.8 188.1 387.2 486.3 557.9 567.5 544.3 893.2 2,156.00 2,867.90
Operating Expenses 287.3 291.8 287.1 315.4 305.6 307.7 304.7 324.6 1,214.10 1,242.60 1,468.90
R&D 159.9 167.3 157.6 150.9 161.3 155.7 162.8 162.3 635.8 642 702.5
SG&A 127.3 124.5 129.4 164.5 144.3 152 141.9 162.3 578.3 600.6 766.4
Op Income -106.1 -155 -99 71.7 180.7 250.2 262.8 219.7 -320.9 913.4 1,399.00
Non-op Inc (Exp) -10 -10.8 -11.3 -5.4 9.6 8.7 339.3 2 394.5 359.7 0
Pretax Income -116.1 -165.9 -110.3 66.3 190.3 258.9 602.2 221.7 73.6 1,273.10 1,399.00
Provision for Taxes 0 0 0 0 0 51.8 175 44.3 167.4 271.1 433.7
Effective Tax Rate 0 0 0 0 0 0 0 0 0 0 0
Net Inc bef jv equity -116.1 -165.9 -110.3 66.3 190.3 207.1 427.1 177.4 -93.7 1,002.00 965.3
JV Equity Income -2.7 4 4.7 -1.2 -1 0 4.4 1 4.8 4.5 1
Net Income -118.8 -161.8 -105.5 65.1 189.3 207.1 408.7 178.4 -88.9 983.5 966.3
Earnings per Share -0.41 -0.55 -0.36 0.21 0.57 0.61 0.64 0.52 -1.1 2.34 2.66
Shares Outstanding 291.8 293.9 294.8 305.5 343.9 352.4 352.9 356.9 294.1 351.5 366
% of Revenues
Cost of Sales 83.10% 77.00% 71.60% 60.00% 55.50% 52.30% 53.00% 54.70% 68.70% 53.80% 55.10%
Gross Profit 28.70% 23.00% 28.40% 40.00% 44.50% 47.70% 47.00% 45.30% 31.30% 46.20% 44.90%
Operating Expenses 45.50% 49.00% 43.40% 32.60% 28.00% 26.30% 25.30% 27.00% 42.50% 26.60% 23.00%
R&D 25.30% 28.10% 23.80% 15.60% 14.80% 13.30% 13.50% 13.50% 22.20% 13.70% 11.00%
SG&A 20.20% 20.90% 19.50% 17.00% 13.20% 13.00% 11.80% 13.50% 20.20% 12.90% 12.00%
Op Income -16.80% -26.10% -14.90% 7.40% 16.50% 21.40% 21.80% 18.30% -11.20% 19.60% 21.90%
Non-op Inc (Exp)
Pretax Income -18.40% -27.90% -16.70% 6.80% 17.40% 22.10% 49.90% 18.40% 2.60% 27.30% 21.90%
Net Inc bef jv equity -18.40% -27.90% -16.70% 6.80% 17.40% 17.70% -3.30% 14.80% -3.30% 21.50% 15.10%
YoY Change
Revenue 16.80% 13.00% -3.50% 22.80% 72.90% 96.70% 82.20% 24.10% 12.40% 63.50% 36.70%
Gross Profit 54.50% 0.30% -28.50% 26.20% 168.40% 307.90% 201.80% 40.60% 8.50% 141.40% 33.00% |
