To: Jozef Halada who wrote (22540)
From: Lynn Segal Thursday, December 14, 2000 7:28 PM ET
Reply # of 23002
MORGAN STANLEY DEAN WITTER
Neutra
Mark Edelstone/John Cross/Louis Gerhardy (San Francisco) – Dec. 14, 2000
52-Wk Shs Out EPS EPS EPS 5-Yr Est.
Price Rng Div Yld (MM) 99A 2000E P/E 2001E P/E Growth
$17 $49–13 -- -- 357.0 $(1.05) $2.35 7.0 $2.00 8.3 15%
Target Price: NA Market Cap: $5.9B
Valuation
We believe AMD has the capability to complete its product
transition in 2001 and increase its K7 MPU production
successfully in the next several quarters. In addition, the
company should be able to scale up K7’s performance in
successive product rollouts. However, given that the MPU
industry is highly competitive, we believe AMD would need
to meet the significant challenges by continuing to execute
flawlessly in the upcoming quarters. Consequently, we are
maintaining a cautious earnings outlook for 2001 and our
Neutral rating on the stock.
Key Investment Positives
· Athlon should help AMD’s average selling prices. We
believe the Athlon MPU has helped AMD to increase
blended MPU average selling prices and to increase its
addressable market. The Athlon has proven to be a high-performance,
highly scalable processor that should be able
to compete effectively against the high end of Intel’s
processor line. AMD initially supports Athlon MPUs with
its own chipset, and several Taiwanese companies provide
additional chipset support.
· Demand for flash memory remains strong. We believe
AMD is continuing to benefit from strong demand in the
flash market, which is driven by communication
applications. Although we believe cellular handset
shipments would experience decelerating growth in 2000
and 2001 compared to 1999, we believe the industry is still
consuming significant amounts of flash memory due to the
increasing memory content for each phone shipped. For the
third quarter, cellular handsets accounted for roughly 35%
of AMD’s flash output while data communication,
automotive, and industrial applications accounted for
majority of the rest. We believe the company is still on
track to grow its flash output in megabits by around 100%
in 2001. In addition, we believe demand for flash memory
will remain solid in 2001.
· Potential for higher margins. Due to the high fixed-cost
nature of AMD’s business, incremental revenues should
enjoy high incremental margins. We believe the key to
realizing this potential is solid manufacturing and
marketing execution. Thus far, AMD’s execution on
Athlon has been excellent.
Key Investment Risks
· We think expanding the Athlon family and managing
product transitions is a key issue. We believe the transition to Athlon and Duron — AMD’s MPUs for the performance and value segments, respectively, which utilize Athlon’s core architecture — is a key factor for AMD’s continuing revenue growth and margin performance.
· Cyclicality of semiconductor industry. While the
semiconductor industry has enjoyed a historical compound |
