Chuckles, all - ssb report
it seems that intel is putting real pressure.
note the expected number of units is fairly flat with larger % to mobile.
But a lot of units are viewed as at risk
Regards
-Albert
10:36am EDT 15-Aug-01 Salomon Smith Barney (Jonathan Joseph +1-415-951-1887) AM
AMD: Trimming Unit and EPS Estimates
SALOMON SMITH BARNEY
Advanced Micro Devices Inc (AMD)
AMD: Trimming Unit and EPS Estimates 1S (Buy, Speculative)
Mkt Cap: $5,830.1 mil.
August 15, 2001 SUMMARY
* In the Semi Beat several days ago, we noted our
SEMICONDUCTORS channel checks were suggesting AMD could lose some
Jonathan Joseph GTW and CPQ business to Intel, while a press report
+1-415-951-1887 yesterday suggesting IBM was converting solely to
jonathan.joseph@ssmb.com INTC.
Ramesh Misra * Losses on the desktop will likely be at least
+1-415-951-1883 partly offset by gains in the notebook arena. AMD
has a number of design wins with its new low-power
Dunham Winoto Athlon 4 announced in June.
+1-415-951-1875 * We estimate the net loss from the above OEMs at
about 1-2 million units per year, about 5% of sales,
with 3-4 million desktop units at risk offset by
gains of 1-2 million units in the consumer notebook
area.
* We are trimming our unit estimates accordingly,
'01 units from 31.5 million to 30.8 million, '02
from 38 million to 36 million. We also trimmed '01
EPS from $0.46 to $0.40 and '02 from $0.65 to $0.50.
No change to our price target of $35, which is 3x
book value and 3x sales.
FUNDAMENTALS
P/E (12/01E) 41.5x
P/E (12/02E) 33.2x
TEV/EBITDA (12/01E) NA
TEV/EBITDA (12/02E) NA
Book Value/Share (12/01E) $10.83
Price/Book Value 1.5x
Dividend/Yield (12/01E) NA/NA
Revenue (12/01E) $3,971.4 mil.
Proj. Long-Term EPS Growth 15%
ROE (12/01E) 17.3%
Long-Term Debt to Capital(a) 16.6%
AMD is in the S&P 500(R) Index.
(a) Data as of most recent quarter
SHARE DATA . RECOMMENDATION
Price (8/13/01) $16.61 Current Rating 1S
52-Week Range $37.63-$13.69 Prior Rating 1S
Shares Outstanding(a) 351.0 mil. Current Target Price $35.00
Convertible No Previous Target Price $35.00
EARNINGS PER SHARE
FY ends 1Q 2Q 3Q 4Q Full Year
12/00A Actual $0.57A $0.60A $0.64A $0.53A $2.35A
12/01E Current $0.37A $0.05A ($0.03)E $0.01E $0.40E
Previous $0.37A $0.05A $0.00E $0.04E $0.46E
12/02E Current $0.04E $0.08E $0.15E $0.23E $0.50E
Previous $0.07E $0.12E $0.19E $0.26E $0.65E
12/03E Current NA NA NA NA NA
Previous NA NA NA NA NA
First Call Consensus EPS: 12/01E $0.37; 12/02E $0.57; 12/03E NA
OPINION; LOSING SOME DESKTOP, GAINING SOME NOTEBOOK
As we mentioned in our Beat several days ago, our recent channel checks have
suggested that AMD might be losing some Gateway (GTW-$11, 3H) and Compaq (CPQ-
$14, 3H) desktop business to Intel (INTC-$30, 1M). Yesterday, a press report
quoted IBM # (IBM-$, 1M) as saying they were discontinuing the use of the
Athlon in the U.S. market, and would assess their overseas use of AMD
processors over the next few months. We recently spoke with the company and
they declined to comment on changes in customer mix.
How big is little? Though the headlines "IBM Drops AMD in North America" were
pretty bold, the reality in our view was pretty wimpy. IBM stopped all retail
computer sales in the U.S. in late 1999. They only used AMD in a single build-
to-order SKU in the U.S., and in two models in Canada. IBM's retail business
overseas is probably in the hundreds of thousands of units. Nor do we believe
the impact from Compaq (if true) and Gateway (confirmed) will amount to as many
units at those headlines would suggest. A year ago, AMD probably represented
about half of all Gateway units, or about 500,000 units per quarter. AMD's
contribution has fallen sharply, as have Gateway's total units out. We have
heard AMD's units to Gateway may be as low as 120,000 units in Q3, falling to
nothing in coming quarters. Our SSB PC analyst, Rich Gardner, also contacted
Compaq. They, of course, would not comment on the total AMD units they consume,
but we estimate it at about 300,000 units per quarter, at present. A point
Compaq made, which we think is valid: they need AMD to act as an offset against
Intel, and are very unlikely to jettison the former for fear of the latter. Our
guess, conservatively, is that total AMD desktop units at all of these vendors
is probably about 2-4 million.
Don't forget the new notebooks coming out. Since discontinuing the K6-2 last
year, AMD has solely targeted its Athlon family at the desktop market. And it
has done a very impressive job there. Last June the company announced the low-
power Athlon-4, also known as the Palomino. With power dissipation as low as 2
watts, compared to about 65 watts for the Athlon-Thunderbird, for the first
time, AMD has a very competitive mobile computing 7th generation processor. We
estimate the notebook market is running about 25-28 million units annually,
with consumer notebooks where AMD would be strong, in the 6-8 million unit
range. A reasonable assumption would be for AMD to capture about 1.5-2 million
of those units, about 25% market share. In the past couple of months Hewlett
Packard # (HWP-$, 1M), Sony (SNE-$50, 1H), and Compaq have all announced
consumer-oriented or business-oriented notebook computers using the Palomino.
AMD believes it is designed into most of the consumer-based notebook suppliers.
The benefit of these design wins are that ASPs in the notebook area tend to be
much better than on the desktop. Intel recently announced its PIII-M, the 0.13-
micron "shrink" version of the PIII. This also is a good processor, and we
would expect the new offering from Intel to help it continue to dominate the
high-end of the notebook market.
Company guidance unchanged. We recently spoke with the company, and they
reiterated guidance given on the last analyst conference call. Average prices
are not likely to rise this quarter above the $75 blended average the company
reported last quarter. It is possible they could go down given continuing
pricing pressure in the generally slow computer market. We are forecasting ASPs
flat at $75 for the quarter, $80 for the year and about $80 for next year. The
company believes, however, that units in the quarter could rise slightly. We
revised downward our Q3 unit forecast from 8.0 million to 7.7 million,
essentially flat with Q2. As mentioned, we also reduced 2001 units from 31.5
million to 30.8 million, 2002 from 38 million to 36 million units. The company
continues to expect Flash memory will fall by 10-15% this quarter. Given what
management believes will be a better Flash market in Q4, partly because of new
2.5G cellular handset design wins, Flash shipments could rise in the quarter
and that division could break into profitability. |
