Prudential may be accused of being over-optimistic, but their analysis is a welcome respite from the gloom. From amd_gorilla at Yahoo;
Pru Research / 1 Jun 2006
"HIGHLIGHTS
• We continue to believe that the MPU market is at an inflection point, and is migrating from a market
dominated by Intel with 85-90% share, to a true duopoly where the natural equilibrium is a 70/30 or
50/50 market share split. The recent announcements by Dell and AMD's capacity support this thesis.
• In this environment, we believe that AMD potentially has $3-to-$5 of EPS power in 2008. At today's
stock price, this would translate to a PE of 6-to-11.
• Our recent Asia checks indicate that AMD is taking noticeable share in notebook PCs, and that many
in the PC supply chain are unhappy with Intel's recent price cuts due to the Intel inventory they've
been carrying.
• Separately, we attended AMD's analyst day. Highlights include: 1) AMD plans to catch, if not surpass
Intel at the 45 nm process node, 2) a new low-power notebook MPU architecture by 2007, 3) a true
quad-core architecture by mid-07 which could distance AMD from Intel at the high-end servers and
desktops, 4) benchmark by AMD showing 15%-30% power advantage of AMD Opteron over
Woodcrest.
• AMD remains our top pick. We think the stock could double in 12-18 months. Reiterate our
Overweight rating and $65 price target."
"1. AMD continuing to take share in notebook PCs. We’ve heard that AMD appears to continue to
take share in notebooks, particularly at Acer and Asus. The reason being that AMD’s product is
simpler and lower cost, and recently the company has been increasing technical support to
OEMs/ODMs. Our contacts tell us that Intel’s notebook platform is high performance, and high
cost with a lot of “nice to have” functionality that is not critical. (see our Feb 15 note, “INTC:
Victim of Short Term Speed Bump or Long-Term Disruptive Innovation”)
We find it interesting that AMD is gaining share in notebooks, where it theoretically has an
inferior product We think it has to do with Intel’s strategy – by selling the same Centrino
platform to everyone, its customers have a difficult time differentiating. We think Intel’s “one
size fits all” strategy is flawed because the notebook market is highly fragmented and looks much
more like the cell phone market than the desktop PC market. AMD’s solution is not only
cheaper, but since it doesn’t require the customer to purchase the whole platform, it is easier for
OEMs to customize, i.e., for high end, graphics intensive, cheap, power efficient markets, etc.
2. Supply chain surprised by recent Intel price cuts, and unhappy. Our contacts indicate recent Intel
price cuts ranging from 20% at the low-end desktop to 60% at the high end. Our contacts
characterized the reaction to the recent cuts by OEMs/ODMs and channel as being unhappy due
to the amount of Intel inventory that they are carrying. AMD initial reaction appears to be
emphasizing its power advantage, and its price advantage, which it still appears to have in many
places. We note that AMD’s CEO, Hector Ruiz, was quoted by Dow Jones as saying, “We’re not
going to overreact because this is an attempt to clean up an inventory mess.
3. Desktop demand tracking to seasonal patterns, notebooks slightly below. Our checks indicate
that desktop motherboard shipments are tracking close to historical norms of down 10%
sequentially in the June quarter, this is actually better than the original forecasts of down 15-20%
QoQ. Notebook shipments are tracking to be down 5% QoQ which are below historical norms." |
