Epi,
<1) You think that AMD is totally doing the right thing by aggressively going for market share and think that it is only their poor management/marketing that is lacking in the current situation (meaning their priorities aren't wrong right now but it is their execution that is to blame for the low asp's and inability to get a business win or sell Durons more effectively)?>
A reasonable summary of what I said. AMD has to go for market share or consider getting out of the x86 business completely. The one place where I would disagree is about "poor management/marketing that is lacking in the current situation". It is poor marketing/management regardless of the situation (even when almost everything was in AMD's favor for over a year, these guys couldn't deliver.)
<2) Even in a worst, worst, worst case situation you think that AMD still isn't some dead duck that's going to get sunk and never recover. >
I was stating that even if things were to go really bad, AMD would still have significant amount of cash on hand (for example, at a burn rate of $250M a quarter - which is a pretty large number for AMD, AMD would have cash to keep it going into 2003. Realistically, I don't see AMD's balance sheet getting to the "k6 days" until late 2003 or early 2004.
<Meaning that if in some cataclysm it came down to doing so then they could be a profitable company even if they got out of processors entirely. >
Rambus has established a business model that clearly indicates that such a thing is possible. Will AMD be able to do it? I think it is possible.
<Maybe this is melodramatic but it has always been part of my premise for investing in AMD. Even if they completely lost the processor wars they wouldn't walk away empty handed. They could be a fully viable company just with flash. >
Flash is a near-commodity business. It is not as bad as DRAMs or SRAMs but it is not a business that could give consistent profitability. I personally stay away from that kind of business except as a cyclical play.
<..or I remember you saying that quite explicitly once and just wanted to make sure that you thought that it was still true...>
I was never a great fan of flash given the cyclicality. If I were running AMD I would have spun flash off in 2000 when flash alone justified AMD's valuation. Shareholders like me would have cashed out of it at $30-40 a share (split adjusted AMD equivalent) and would have just kept the microprocessor part.
The assumption at that point was that flash would stay strong until the end of 2001 which turned out to be wrong given the dramatic changes in the macro environment. Today, I don't know where AMD's flash business is and where it is going. It can be argued that AMD flash business is doing better than others due to the contracts written at peak (which is not bad) but is definitely not worth anywhere close to what it was worth last year.
<Ok there's only two, basically I am reading your posts about how much this situation and the way they handled it sucks and am still not getting the total doomsday feel that some other's are purveying today and I want to be sure that's not just clueless hallucinatory hope on my part. >
The company is not close to doomsday but the stock will not have the relative strength it had over the last year or so.
<I would also be very interested to hear what you think is a fair valuation for AMD, that is right now, in this market environment, given the falling asp's, the price war, and the recent bad news, what do you think is a reasonable valuation?>
I have no idea what a fair value in this environment is because I don't know if any of the typical seasonal patterns hold. Assuming typical seasonality holds from here, AMD can trade around 2 times sales - that would be somewhere around $8B in market cap.
Assuming AMD makes no corporate penetration, there is not going to be much of a catalyst to drive that P/S ratio, so, I would expect the stock valuation to oscillate around that number for the next year or so.
Chuck |
