John
here is the report, I did not see it posted yet
00:33am EDT 29-Jun-01 Robertson Stephens (Rothdeutsch, Eric) AMD
Market Share Gains Seen Continuing; Notebook Products are Red-Hot
T E C H N O L O G Y /
S E M I C O N D U C T O R
R E S E A R C H
June 29, 2001
A D V A N C E D M I C R O D E V I C E S , I N C . (AMD/$26.57)
Market Share Gains Seen Continuing; Notebook Products are Red-Hot
Rating: Buy
Eric Rothdeutsch 415.693.3241 eric_rothdeutsch@rsco.com
Tai Nguyen 415.248.4670 tai_nguyen@rsco.com
Change In... Yes/No Was Is
Rating No BUY
EPS F2000A No $2.35
EPS F2001E No $1.50
EPS F2002E No $1.90
52-Week Range $46.13-13.56
FD Shares Outstanding 349.8 MM
Market Cap $9,294.2 MM
Avg Daily Volume (000) 8,078
Book Value/Share 3/01 $9.02
3-Yr Secular Gr Rate 12.00%
Dividend/Yield 0.0/ NONE
FY December F2000 A F2001 E F2002 E
EPS
1Q $0.57 $0.37 A $0.39
2Q $0.61 $0.27 E $0.43
3Q $0.64 $0.38 E $0.50
4Q $0.53 $0.48 E $0.58
Year $2.35 $1.50 $1.90
P/E: NM 17.7x 14.0x
Rev (MM) F2000 A F2001 E F2002 E
1Q $1,092.0 $1,188.7 A $1,329.4
2Q $1,170.4 $1,069.4 E $1,369.3
3Q $1,206.5 $1,229.8 E $1,451.5
4Q $1,175.2 $1,445.0 E $1,596.6
Year $4,644.2 $4,933.0 $5,746.8
Eqty Mkt Val/Rev: NM 1.9x 1.6x
Investment Summary
* Our recent trip to Asia confirms our belief of continued market share gains
by AMD versus Intel, particularly on Athlon processors running at 1GHz,
which now appear to be on allocation. We think the Athlon 4 processor
targeting notebooks is a home run product given its superior performance,
and we believe the company will enter 3Q01 with healthy Athlon 4 backlog.
We are reiterating our Buy rating on AMD and 12-month price target of $35.
Key Points
* We continue to feel comfortable with our 2Q01 revenue estimate of $1.07
billion. Although we feel our $0.27 EPS estimate is achievable, we think
there is $0.01-$0.02 downside risk to EPS should gross margins fall short of
our 38.5% estimate given what we believe will be a declining blended ASP.
Still, we think that overall, the company should report solid performance in
what otherwise is a tough semiconductor environment during the seasonally
slowest quarter of the year for PC demand.
* Market share gains seen continuing. During our recent visit to Asia, our
discussions with manufacturers and distributors indicated a continued solid
demand for AMD processors, particularly the Athlon 4 (Palomino) and products
at 1GHz speeds. Although we do not expect the large market share gains
achieved in 1Q01 versus Intel to be repeated where AMD s share grew from 17%
to 21.5% QoQ we think AMD nevertheless continues to gain share given the
superior price/performance of Athlon processors versus the Pentium 4.
* AMD on allocation (again). Our recent checks indicate that demand for AMD
processors continued to pick up steam throughout the second half of the
quarter. It appears that the company now is on allocation for Athlon
processors running at the sweetspot 1GHz speed grade. As a result of what
we believe was solid demand over the last few weeks, we now believe there is
upside to our 6.75 million processor unit assumption for 2Q01.
* Athlon 4 (Palomino) is hot. We believe the Athlon 4 processor targeted at
notebooks to be a home-run product after having achieved design wins at
Compaq, Fujitsu, H-P, NEC, and Sony. Shipping at list prices ranging from
$143-$354, Athlon 4 shipments are contributing their unfair share to the
company s blended ASP. Given the faster-than-expected adoption rate of the
Athlon 4, we now think there is upside to our 250K unit assumption for 2Q01,
and we think the company has healthy Athlon 4 backlog entering 3Q01.
* Pricing has been aggressive. Since the beginning of the quarter, we
estimate that prices on Athlon and Duron processors have dropped between
28%-44% and 18%-50%, respectively. As a result, we believe the company s
blended ASP will be in the mid-$80 range for the quarter, falling below our
$93 estimate. However, we look for the blended ASP to reverse its slide in
2H:C01 as Athlon 4s ramp into high-volume production.
* Compelling valuation. We note that AMD is trading at 14 times our F2002 EPS
estimate of $1.90, or at a 28 multiple discount to Intel (current trading at
42 times our F2002 estimate of $0.70), a gap we expect to narrow (see Chart
1).
Chart 1.
Source: Factset.
The Company
Advanced Micro Devices (AMD) is one of the largest manufacturers of digital
integrated circuits (ICs). The three principal types of digital ICs used in
most electronic systems are (i) memory circuits, (ii) logic circuits, and (iii)
microprocessors. AMD's diversified product portfolio addresses two of the
three markets for ICs--memory and microprocessors. AMD is currently the second
largest manufacturer of flash memory and microprocessors next to Intel.
Investment Thesis
AMD is poised to benefit from the unfolding of what appears to be a highly
successful product cycle that may stimulate earnings growth while winning
significant market share from rival Intel. AMD s Athlon and Duron product
families, addressing the performance and value segments of the market
respectively, are performance competitive products that are gaining solid
marketplace acceptance versus Intel products. AMD is also well positioned in
the flash memory market with a diversified product line addressing the fast
growing mobile phone, set top box, internet infrastructure and mobile internet
access markets.
Investment Risks
Among the risks are AMD's ability to convert large OEMs to its new
microprocessor while simultaneously ramping new process technology in a timely
manner. While we believe that that the K7 product roadmap could prove potent
in the long run, significant risks remain with respect to building market share
while developing new products to address the ever-changing processor market and
related form factors that are now being dominated by Intel-based designs.
AMD has a significant exposure to the highly competitive flash memory market
that is susceptible to large swings in pricing. Approximately 30% of AMD's
revenues are derived from flash and greater than 30% of its profits. A large
downward movement in flash prices could have a significant negative material
impact to the company's financial performance. AMD also remains vulnerable to
further price pressure in all product lines and faces as its principal
competitor the most formidable semiconductor company in the world, Intel. |
