NG, All
few nice remarks from David Wong
Regards
-Albert
06:52am EST 18-Jan-01 UBS Warburg (US) (Wong, David M. +1 212 713 2649) AMD
Advanced Micro Devices: Could Grow 15% in 2001 (Part 1 of 2)
Semiconductors UBS Warburg
David Wong, CFA, Ph.D. RESEARCH NOTE
+1 212 713 2649/david.wong@ubsw.com
Sam Lee, Associate Analyst (+1 212 713 3273) January 18, 2001
Calvin Lee, Associate Analyst (+1 212 713 8631)
Advanced Micro Devices Rating: Buy
(AMD-$17.81)
Advanced Micro Devices: Could Grow 15% in 2001
KEY POINTS
* AMD reported a 3% sequential drop in revenues in the December 2000 quarter.
* We believe AMD's guidance for flat sequential revenue growth in the
seasonally slow March quarter and expectation of 15% revenue growth for 2001
reflects well on the PC market and the company's position within this market.
* We are reducing our 2001 revenue estimate from $5.62 billion to $5.35 billion
and our 2001 EPS estimate from $2.27 to $1.95.
* We are maintaining our Buy rating on AMD with a 12-month price target of $27
based on 11x our 2002 EPS estimate of $2.41. We think that AMD's stock
represents a good value at its current price.
Key Data Quarterly Earnings Per Share (fiscal year ends
December)
52-Wk Range $47-14 2000A 2001E Prev 2002E Prev
Eq.Mkt.Cap.(MM) $5,582 1Q $0.58 $0.40 $0.41 $0.50
Sh.Out.(MM) 313.4 2Q 0.61 0.45 0.48 0.55
Float NA 3Q 0.64 0.51 0.63 0.63
Inst.Hldgs. 54.5% 4Q 0.53 0.59 0.75 0.72
Av.Dly.Vol.(K) 7,168 Year $2.95 $1.95 $2.28 $2.41
Curr. Div./Yield $0.00/NA FC Cons.: $2.37 $2.04 NA
Sec.Grwth.Rate 15% P/E: 6.0x 9.1x 7.4x
12-mo. Tgt Price $27.00 Revs.(MM): $4,644 $5,620 $6,350
12-mo. Ret. Pot'l 51.6%
Convertible? Yes
DECEMBER QUARTER SLIGHTLY BELOW ESTIMATES
AMD's results were more or less in line with the company's preannounced EPS of
$0.50-$0.60. Exhibit 1 shows AMD's December 2000 quarter reported results vs
our expectations:
* Revenues of $1.175 billion were slightly less than our $1.24 billion estimate
and represented a 3% sequential drop in revenues from the September 2001
level.
* EPS of $0.53 was slightly lower than our $0.54 estimate and $0.55 which was
the consensus estimate.
* Gross margin of 44% was slightly lower than our 45% estimate.
Exhibit 1: Reported results vs our expectations
We
Reported Expected
Revenues ($MM) 1,175 1,240
EPS $0.53 $0.54
Gross Margin 44% 45%
R&D ($MM) 162 175
MG&A ($MM) 160 150
Source: Company reports; UBS Warburg estimates
For the March 2001 quarter AMD expects:
* Flat sequential growth overall.
* Sales of 6.0-6.5 million processors, down from nearly 7 million processors in
the December 2000 quarter. Partially offsetting the drop in processor
shipments is a potential gain in average selling price advantage with the
Duron processor ramping in the March quarter and replacing lower value K6
microprocessors. We expect the net result will be a small sequential drop in
microprocessor revenues.
* "Modest" sequential growth in flash revenues. We think that bit production
growth will be somewhat offset by a fairly substantial flash price drop which
AMD implements annually at the beginning of the calendar year (of the order
of 15-20% price drop, we estimate).
We expect:
* steady growth in flash memory revenues through 2001
* a seasonally strong second half of 2001
* some amount of market share gains in microprocessors from AMD expanding into
the performance desktop market with the Athlon and the value microprocessor
market with the Duron.
We are reducing our 2001 revenue estimate from $5.62 billion to $5.35 billion
and our 2001 EPS estimate from $2.27 to $1.95. The reduction in EPS comes from
a decrease in revenues as well as lower gross margins and higher operating
expenses. We are introducing 2002 estimates for revenues of $6.35 billion and
EPS of $2.41. We are maintaining our Buy rating on AMD with a 12-month price
target of $27, based on 11x our 2002 EPS estimate.
Y-O-Y GROWTH OF 67% IN FLASH MEMORY REVENUES
Exhibit 2 shows AMD's revenues by product line and the year-over-year growth.
PC processors yearly growth was driven primarily by sales of the Athlon.
During the December quarter, PC processors unit shipments reached a record of
nearly 7 million units. However a significant portion of these units were
legacy K6 family processors that faced end-of-life pricing. As a result, the
revenues and ASPs for processors dropped from $625 million and $91 in the
September quarter to $566 million and $81 in the December quarter. Flash
memory continued to show strong year-over-year growth of 67% and sequential
growth of 9% in the December quarter. The strong demand for flash memory was
driven by the communications sector, in particular, networking and wireless
handsets. AMD is an important supplier of flash to Nokia and Cisco, and
recently announced that they are the primary supplier to Palm. The other IC
products category combine embedded processors, network products and PC
chipsets, and are not areas AMD plans to grow. The foundry services revenues
come from the Vantis and Legerity divisions that AMD has sold.
Exhibit 2: Revenue By Product Line
$Millions Dec. 99 Dec. 00 Y-o-Y
Growth
PC processors 495 566 14%
Memory 275 458 67%
Other IC products 117 98 -16%
Foundry services 23 53 130%
Total 969 1175 21%
Source: Company reports, UBS Warburg estimates
CAPEX SPENDING CONTINUES TO INCREASE
AMD plans to make capital expenditures of $1 billion for 2001, up from $805
million in 2000. In addition, FASL, AMD's flash memory joint venture with
Fujitsu, also plans to invest $1 billion in capital expenditures for 2001. We
view these capital expenditure plans positively as we believe they indicate
that AMD continues to believe there is strong demand for both microprocessors
and flash memory in 2001. AMD plans to begin production using 0.13 micron
technology in Q4 of 2001.
NEW PROCESSORS PRODUCTS
AMD plans to continue rolling out new and higher speed processors. In the
March quarter of 2001, AMD intends to introduce the Palomino, an Athlon
derivative aimed at the performance segment of mobile computers. The Palomino
will have the PowerNow technology that should decrease the amount of power
consumed by the mobile processor. AMD also plans to manufacture all Athlon
processors with clock speed of one gigahertz of higher by the end of the March
2001 quarter. AMD intends to introduce desktop Athlons running at 1.4-1.5 GHz
in the June 2001 quarter and at 1.7 GHz in the second half of 2001. The
company's plan for the Duron is to have these processors with clock speeds of
greater than 900 megahertz in Q2 of 2001, and above 1 GHz by Q3 of 2001.
RISKS
We think that AMD has several business risks as a result of its exposure to the
PC and flash memory businesses. Intel is a formidable competitor that is the
dominant incumbent PC microprocessor manufacturer, has far greater product
development resources, and does not depend on other companies' technology. AMD
needs to execute well with its impressive roadmap of new microprocessors for
the PC market in order to compete effectively with Intel. Both the PC and the
flash market may grow at a slower rate than we have assumed, which will
adversely affect our revenue growth projections for AMD. Moreover, if current
microprocessor prices decline more than expected, AMD's gross margin could be
lower than what we have modeled. |
