ML on AMD
07:35am EST 9-Mar-01 Merrill Lynch (J.Osha (1) 415 676-3510) AMD INTC INTC.N
ADVANCED MICRO:Weaker Flash, but We Like the Story
ML++ML++ML Merrill Lynch Global Securities Research ML++ML++ML
ADVANCED MICRO DEVICES (AMD/NYSE)
Weaker Flash, but We Like the Story
Joseph Osha (1) 415 676-3510
ACCUMULATE* Long Term: BUY
Reason for Report: Lowering Estimates
Highlights:
o As evidence continues to accumulate that the flash memory business is
weakening, we are lowering our estimates to more realistic levels.
o Our earnings estimate for 2001 has gone from $1.84 to $1.72, and our
revenue estimate has gone from $5.3 billion to $4.9 billion.
o However, we think that AMD is substantially better-positioned in 2001 than
Intel is, and we regard the stock as a more attractive investment prospect as
well.
o We note that the major problem areas for Intel - servers and performance
desktop/notebook PCs in the U.S. - are markets that AMD is less exposed to.
o In contrast, we think that AMD is much better to benefit from still-robust
sales of low-end PCs in Asian markets, and European sales that have not
weakened as dramatically.
Price: $26.00
Estimates (Dec) 2000A 2001E 2002E
EPS: $2.35 $1.72 $2.21
P/E: 11.1x 15.1x 12.6x
EPS Change (YoY): -26.8% 19.8%
Consensus EPS: $1.84 $2.22
(First Call: 02-Mar-2001)
Q1 EPS (Mar): $0.57 $0.37
Cash Flow/Share: $1.79 $1.98 $8.75
Price/Cash Flow: 14.5x 13.1x 3.0x
Dividend Rate: Nil Nil Nil
Dividend Yield: Nil Nil Nil
Opinion & Financial Data
Investment Opinion: C-2-1-9
Mkt. Value / Shares Outstanding (mn): $9,308 / 358
Book Value/Share (Dec-2000): $9.05
Price/Book Ratio: 2.9x
ROE 2001E Average: 26.0%
LT Liability % of Capital: 27.7%
Est. 5 Year EPS Growth: 25.0%
Stock Data
52-Week Range: $48.50-$13.56
Symbol / Exchange: AMD / NYSE
Options: Pacific
Institutional Ownership-Vickers: 46.1%
Brokers Covering (First Call): 14
*Intermediate term opinion last changed on 05-Apr-2000.
For full investment opinion definitions, see footnotes.
Flash is slowing down, for sure
As evidence continues to accumulate that the flash memory market is in trouble,
we think it's prudent to take our numbers for AMD's flash business down again.
We're now modeling 2001 flash revenue essentially flat with 2000 - our March
2001 estimate for flash shows a 15% sequential decline.
The impact is to take our overall numbers down modestly - our earnings estimate
for 2001 has gone from $1.84 to $1.72, and our revenue estimate has gone from
$5.3 billion to $4.9 billion.
AMD's MPU business is in better shape, though
We see little, however, that would lead to us believe that our microprocessor
estimates for AMD need to come down. We expect the company to post a much
better set of results for the March quarter than Intel, for which we are now
modeling a 24% sequential decline in revenue. Our new AMD numbers show a 5%
sequential decline.
Given the downbeat commentary on the PC market from Intel, one might wonder why
we still think AMD can hold the line on its MPU business. A closer look at
Intel's comments yesterday, and Intel's problems in general, leads us to
several important conclusions.
1. The U.S. PC MPU market is the biggest source of weakness. It's
possible that European and Asian ex-Japan markets may be preparing to roll
over, but under questioning yesterday Intel admitted its biggest problems are
in the U.S. We think that corporate and high-end retail in the U.S. is
especially weak, and the magnitude of Intel's decline supports our position.
AMD is much less exposed to U.S. corporate and high-end retail markets than
Intel is.
2. Weak server shipments are a problem for Intel as well. They are not a
problem for AMD, which has not yet made significant inroads into the server
market.
3. AMD's lower-end Duron product is seeing good acceptance in Asian
markets, and AMD's overall exposure to Asia is higher than Intel's. Intel
pointed out yesterday that it is continuing to see solid growth from the
Chinese and Indian PC markets.
4. AMD is not struggling to defend a high ASP as Intel is. Our current
model shows ASP at $95 for the March quarter, trending lower though the year as
Duron ramps. We don't see any problem for AMD in terms of hitting that
model.
AMD is a much more attractive investment prospect than Intel this year
Intel continues to struggle with the fact that that the most profitable
segments of its business are slowing. Meanwhile AMD's exposure to lower-margin
but faster-growing segments of the PC market is going to allow the company to
put up solid results this year. We are metering our numbers down on the flash
business, but we want investors to be clear on our message - we think that AMD
is a more attractive investment prospect than Intel(INTC; B-2-2-7; $33.25) in
2001. |
