S&P: Dell Deal a "Big Win" for AMD
businessweek.com
MAY 19, 2006
From Standard & Poor's Equity Research
Dell (DELL ) : Maintains 3 STARS (hold)
Analyst: Megan Graham-Hackett
April quarter earnings per share (EPS) of 33 cents vs. 37 cents is in line with the preannouncement and 4 cents below our estimate. Revenues rose just 6%, hurt by pricing, but notebook, enhanced services and storage sales were still relatively strong. We were disappointed by server sales' rise of just 3%, and we view the announcement that Dell will use AMD chips in its servers as long overdue. Our fiscal year 2007 (ending Jan.) EPS estimate falls by 10 cents to $1.45 to reflect heavy investment in customer support. Given our view of potential for better traction from new initiatives, we view Dell as worth holding.
Advanced Micro Devices (AMD ): Reiterates 5 STARS (strong buy)
Analyst: Thomas Smith, CFA
AMD welcomes Dell (DELL ) "to the world of AMD64" in a statement on Dell's plans to offer AMD Opteron Dual Core processors in server products by the end of the year. We view the entry into a previously Intel-only (INTC ) account as a big win in a series of other marketing wins. It implies strong demand for Opteron even as Intel readies a new product. It begs the question as to whether Dell might eventually offer AMD-based PC products beyond the Alienware high-end game machine, which we view as a boost to investor confidence. Our 12-month target price remains $50.
Intel (INTC ) : Reiterates 2 STARS (sell)
Analyst: Thomas Smith, CFA
Intel encounters a marketing setback, in our view, as Dell (DELL ) announces plans to offer servers based on Advanced Micro Devices (AMD ) Opteron processors by year-end. We believe the loss of Intel exclusivity at Dell will hurt the shares. Although the effect on server processor sales via Dell might be small in the near term, strong customer acceptance of the AMD brand continues to pose challenges, in our view. We are maintaining our 90 cents EPS estimate for 2006, but lowering 2007's to $1.30 from $1.40. We are lowering our target price by $1 to $17. |
