Osha picks AMD over INTC in a low-end price war sees 01 ASP =$104
ed:I'm sure Albert will post a cleaner version of this research with the tables, but here's some of the juicy bits
11 January 2001
Joe Osha, CFA Director
.....
No real impact on our strategic thinking,
though
Our estimate changes don’t really have any significant
impact on our stock picking strategy. As is often the case,
stock prices are moving in advance of published first call
estimates, and investors should not interpret our moves
today as a change in our fundamental thinking. We
continue to believe that the wireless channel will rebound
after a weak first quarter, as our published comments today
on Triquint indicate, and we are recommending both
Triquint (TQNT $33.06; C-1-1-9) and Texas Instruments
as intermediate-term Buys. Higher valuations and a likely
slowdown that managements have yet to acknowledge
creates more potential stock price downside for both
Analog Devices and Linear Technology, and we are less
enthusiastic on both names currently. On the PC front,
demand is dismal and a low-end price war is taking shape.
In that kind of environment we’d rather own AMD, which
has a more compelling lineup of products for the low end
than Intel does, but we frankly cannot see being
enthusiastic on either company until the demand picture
improves.
For further details see our Comment, dated 1/11/01.
Intel – More P4?
The big adjustments to our Intel model have come on the
top line for the first half of the year – we have cut $480
million from our first quarter revenue estimate and $500
million from the second quarter. Interestingly, our most
recent checks suggest that Intel is being very aggressive in
positioning P4 in the marketplace – we’ve heard reports of
RDRAM being expedited for P4 platforms, and our checks
indicate that Intel is telling PC makers that it could deliver
18 to 20 million P4 units during 2000. Our current model
calls for 15 million P4 units in 2001.
That has interesting implications for Intel. It’s possible
that Intel is simply talking up P4 to its customers in an
attempt to stave off further advances from AMD, and that
P4 availability will be limited through most of 2001. It is
also possible, however, that Intel intends to take a
substantial hit to gross margin in 2001 in order to establish
P4 in the market even before the P4 becomes available on
the more price-competitive P860 manufacturing process.
Our current gross margin estimate for 2001 stands at
60.2%, down from a forecast 62.6% in 2000, but we regard
that as the portion of our model that has the most
substantial possible downside.
We believe Intel has sufficient visibility to hit Q4 and Q1
numbers in its flash business, and although we have
lowered our flash numbers for the year again, from $2.6
billion to $2.5 billion, most of that change comes in the
back half of 2001. Finally, metering Intel’s substantial
non-operating income down was necessary – we have cut
our non-operating income estimate from $2.5 billion to
$1.7 billion.
AMD – Good Low End Products, Tough
Environment
We continue to believe that AMD is well positioned to
take market share away from Intel in the low end of the
market, where our checks indicate the best business
environment exists currently. Most of the reduction to our
AMD numbers came from reductions to unit shipment
estimates in the first part of the year. Market share gains
notwithstanding, we could not see sufficient demand to
support our previous K7 estimates of 7.2 million for the
first quarter, and cut our number to 5.5 million
accordingly. We had never really bought into the idea that
AMD was going to make substantial inroads in the
corporate market, and our ASP estimate of $104 for all of
2001 remains essentially unchanged. As 2001 progresses,
the combination of improving chipset support from VIA
and the Duron’s superiority over Intel’s Celeron should
drive better numbers, and we have left the latter half of our
2001 model largely unchanged. As with Intel, cutting 2H
flash numbers takes our overall 2001 flash memory
revenue estimate from $2.5 billion to $2.0 billion. |
