John and all:
Saw this on the AMD thread and I'm posting it for Intel investors to see.
IMO, Mr Joseph has it right.
sfgate.com
Monday, August 25, 1997 ú Page B3 c1997 San Francisco Chronicle
ADVANCED MICRO DEVICES INC.
Stock of the Week
David Einstein, Chronicle Staff Writer
HEADQUARTERS: Sunnyvale
BUSINESS: Semiconductors, including microprocessors for personal
computers and specialized chips including flash memory.
BACKGROUND: With flamboyant founder Jerry Sanders at the helm,
AMD has played David to Intel's Goliath in the fast-growing market for
chips that serve as the brains to PCs. For years, AMD made its living by
cloning Intel products, but until recently Intel always managed to stay
ahead with far faster chips. This spring, AMD introduced the K6, which
competes directly against Intel's latest Pentiums. Enthusiasm over the K6
has revitalized AMD's stock, and sales of the chip have helped the
company regain profitability after it lost $69 million in fiscal 1996. Last
week, IBM said it would use K6 chips in some of its computers.
52-WEEK HIGH/LOW: $47.38 (3/97) /$12.25 (9/96). Friday's close:
$41.81
Reported by David Einstein, Chronicle Staff Writer .
UPSIDE
Michael Gumport, Lehman Brothers, New York Recommendation: Buy
I came away from a recent meeting with AMD's management convinced
that they will be able to solve two key issues:
-- It looks like they're well along with a plan to speed up the system bus
(the way the K6 chip handles information) by early next year. Intel will be
doing the same with the Pentium II, so it's incumbent on AMD to get it
done.
-- They also need to match the dual independent architecture in the
Pentium II (the chip differs in design from earlier Pentiums), and I was
impressed that they will have something similar by the third quarter of
1998.
The confirmation that IBM will use K6s in its Aptiva line of computers is
a major positive development for AMD. The company has now won
business from IBM, Fujitsu/ICL and Acer within the top 10 desktop
vendors, and has promised to win at least one more top 10 vendor by
year-end (we guess AST, the smallest of the top 10). They also have a
real shot over the next nine months to get one of the top three companies,
Compaq, Dell or Gateway.
AMD is going to have a very difficult third quarter but will have a very
good fourth quarter and a strong story to tell about 1998. Getting the
stock to $50 to $55 per share by year-end is very doable.
The third quarter probably will be below consensus due to expenses in
ramping the K6, and marginal growth in other parts of AMD's business.
By the fourth quarter the early startup expenses for the K6 will be
somewhat behind them, and there will be a 1-million-unit increase in the
number of K6 chips sold.
DOWNSIDE:
Jonathan Joseph, Montgomery Securities, San Francisco
Recommendation: Hold
One positive thing AMD has going for it is that the PC market is in
reasonably good shape, and there is generally a shift toward lower-priced
computers ($1,000-$1,500), which is where AMD is focused.
But we've heard concerns from potential customers, who see AMD's K6
chip competing with Intel's fifth generation chip, the Pentium with MMX,
rather than its sixth generation chip, the Pentium II. In users' minds, the
K6 is a high-speed version of the MMX. The problem with that is that by
mid-1998, half of the chips Intel will be shipping will be Pentium IIs, and
by late next year it will probably by 80 percent. The market is going to be
very rapidly shifting to Pentium IIs.
PC makers we've talked to say, `Sure they've got the K6, but what about
the K7?' AMD hasn't announced anything, and we're not getting
indications from the customer base that the introduction of a next
generation chip is imminent.
Acceptance of the K6 appears to be OK, particularly among second-
and third-tier vendors. But it's really hard to believe that AMD is going to
ship more than a million or two units to IBM next year (out of an
estimated total shipment of 15 million).
A third issue is that Intel will continue to cut prices dramatically on
Pentium MMX and Pentium II chips, forcing AMD to follow suit. We're
estimating that AMD's average chip price will go from $275 in the June
quarter to $185 in the September quarter.
As long as the PC market is strong, AMD's stock is not going to back up
too much. But we just think there's better potential out there in other
stocks, including Intel.
============================================
Barry |
