AMD :AMD's Analyst Day – Encouraging, but No Major Surpris
2006-06-02 06:55 (New York)
STIFEL, NICOLAUS Advanced Micro Devices, Inc.
& COMPANY, INCORPORATED AMD - NYSE
Hold
Semiconductors
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All relevant disclosures and certifications appear at the end of this report.
June 2, 2006
AMD's Analyst Day " Encouraging, but No Major Surprises
Cody G. Acree, CFA (214) 647-3516 cgacree@stifel.com
W. Blake Fischer, CFA (214) 647-3514 bfischer@stifel.com
Company Update
* Thursday, Advanced Micro Devices held its semi-annual analyst day, which
focused on the firm's products and manufacturing, but refrained from
providing any financial update. Overall we found the day encouraging;
however, we don't believe any dramatic announcements were made which would
likely be a significant catalyst for the firm's shares.
* In our view, the most substantial discussions were:
* The 4x4 platform for game enthusiasts.
* Plans for its next generation architecture which will be available in new
core microprocessor designs throughout 2007, however, few specifics were
given.
* Much media attention was paid to the possibility of AMD introducing a
radical new notebook design. Instead, the firm simply outlined that its new
mobile MPU is expected to launch in the second half of 2007.
* 65 nanometer production continues to be on schedule for the end of the year,
with 45 nanometer expected to ramp approximately 18 months later.
* The firm's most significant strategic announcement was Torrenza, a much more
collaborative development architecture offers the ability for development
partners to add application-specific co-processors to tailor the performance
to a particular need.
* Overall, we believe many of the points covered by AMD were generally
anticipated by investors and in fact, we believe many were expecting either
more details regarding new products or a discussion of the impact of what
looks to be an increasingly difficult pricing environment. While we were
encouraged that AMD's road map will likely make it a formidable threat to
Intel for the long-term, we didn't hear anything yesterday that will calm
investors' fears of near-term volatility caused by a more aggressive Intel
and a generally soft PC market. Accordingly, we maintain our Hold rating.
From To
Changes (Previous) (Current)
--------------- ---------------- ----------------
Rating -- Hold
Target Price -- NA
FY06E EPS -- $1.53
FY07E EPS -- $1.67
Stock Data
------------------------ ------------------------
Price (06/01/06): $31.39
52-Week Range: $43 - $16
Market Cap.($mm): $14,869.4
Shr.O/S-Diluted (mm): 473.7
Enterprise Val. ($mm): $10,999.6
Avg Daily Vol (3 Mo): 17,457,976
LT Debt/Total Cap.: 0.1%
Net Cash/Share: $0.90
Dividend ($): $0.00
Yield (%): 0.0%
Book Value/Share: $7.08
S&P Index: 1,285.71
EPS (Net) 2005A 2006E 2007E
----------- ----------- ------------ ------------
Q1 $(0.04)A $0.38A $0.37
Q2 0.03A 0.31 0.35
Q3 0.18A 0.38 0.44
Q4 0.45A 0.46 0.52
FY Dec $0.66A $1.53 $1.67
P/E 47.6x 20.5x 18.8x
----------- ----------- ------------ ------------
Revenue $5.85B $5.72B $6.32B
(Net)
EV/Revenue 1.9x 1.9x 1.7x
Thursday, Advanced Micro Devices held its semi-annual analyst day, which
focused on the firm's products and manufacturing, but refrained from providing
any financial update. Overall we found the day encouraging; however, we don't
believe any dramatic announcements were made which would likely be a
significant catalyst for the firm's shares.
In our view, the most substantial discussions were as follows:
* The introduction of the 4x4 platform for game enthusiasts. This design will
have two sockets for dual core processors connecting to two sockets for dual
core graphics processors. The design will be upgradable to support AMD's quad
core designs, when available. While we believe the notion of four MPUs and
four GPUs will appeal to some of the most "hard core" gamers, we expect the
system will need to be relatively expensive and likely only serve a small
portion of the market.
* AMD vaguely discussed plans for its next generation architecture which will
be available in new core microprocessor designs throughout 2007, however, few
specifics were given. Quad-core offerings are being developed for servers,
workstations, and high-end desktops, while dual core products will target
mainstream desktops. These designs are expected to launch by mid-2007 and are
targeting a 60% improvement in performance per watt in 2007 and a 150%
improvement in 2008.
* Much media attention was paid to the possibility of AMD introducing a radical
new notebook design. Instead the firm simply outlined that its new mobile
offering would be a dual core chip with substantial improvements in power
efficiency and battery life. The new mobile MPU is expected to launch in the
second half of 2007.
* 65 nanometer production continues to be on schedule for the end of the year,
with 45 nanometer expected to ramp approximately 18 months later, or by the
middle of 2008. 65nm cross over is expected to happen during 1Q07, with full
conversion by July '07. 32nm is then expected to ramp less than two years
following 45nm.
* In aggregate, AMD expects to increase its wafer production capacity by up to
fourfold between 2005 and 2009. The firm believes it will be fully capable of
serving approximately one-third of the PC market by 2008.
* Chartered Semiconductor's ramp of 90nm MPU production is under way and
approximately six weeks ahead of schedule. A transition for foundry
production at 65nm is planned for mid-07.
* Initially, AMD had expected to earn 20% of the server market and 15% of
desktops by the end of 2006. At the meeting, AMD announced its new targets or
30% of servers and greater than 15% desktops.
* In our view, the firm's most significant strategic announcement was Torrenza,
a shift toward a much more open collaborative development architecture that
allows licensing of HyperTransport. Through Torrenza, AMD will be offering
the ability for development partners to add application-specific co-
processors to tailor the performance of an AMD system to a particular need.
* Other initiatives included Trinity for enhanced Security, Virtualization, and
Manageability, and Raiden, which works to move processing load more toward
the data center, leaving users with more power efficient thin clients.
Overall, we believe many of the points covered by AMD were generally
anticipated by investors and in fact, we believe many were expecting either
more details regarding new products or a discussion of the impact of what looks
to be an increasingly difficult pricing environment. While we were encouraged
that AMD's road map will likely make it a formidable threat to Intel for the
long-term, we didn't hear anything yesterday that will calm investors' fears of
near-term volatility caused by a more aggressive Intel and a generally soft PC
market. Accordingly, we maintain our Hold rating.
Company Description
Based in Sunnyvale, California, AMD designs, develops and manufactures
semiconductors for the computing and communications markets. The company is the
second-largest supplier of PC processors.
Important Disclosures and Certifications
I, Cody Acree, certify that the views expressed in this research report
accurately reflect my personal views about the subject securities or issuers;
and I, Cody Acree, certify that no part of my compensation was, is, or will be
directly or indirectly related to the specific recommendation or views
contained in this research report.
I, W. Blake Fischer, certify that the views expressed in this research report
accurately reflect my personal views about the subject securities or issuers;
and I, W. Blake Fischer, certify that no part of my compensation was, is, or
will be directly or indirectly related to the specific recommendation or views
contained in this research report.
For a price chart with our ratings and target price changes for AMD go to
sf.bluematrix.com
The rating and price target history for Advanced Micro Devices, Inc. and its
securities prior to December 1, 2005 on the above price chart reflects the
research analyst's views while employed at the prior owner of part of the
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