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Technology Stocks : AMD:News, Press Releases and Information Only!

AMD 203.14

-0.8%

Jan 9 3:59 PM EST

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To: Brian Hutcheson who wrote (862)	10/1/1997 2:05:00 PM
From: AK2004	of 6843

Brian, All - some reviews 08:59am EDT 1-Oct-97 Salomon Brothers (Erika Klauer (212) 783-0455) AMD AMD--AMD Pre-Releases That 3Q Results Will Disappoint Rec. Code: STRONG BUY Prior EPS: 1999E: 1998E: 3.5 1997E: 0.5 1996A: -0.51 Current EPS: 1999E: NULL 1998E: 3.5 1997E: 0.2 1996A: -0.51 Stock Price: $32.75 10/01/97 - AMD indicated that third quarter losses would be greater than expectations due to a yield shortfalls of the K6 microprocessor. The company will ship 1 million K6 units in the third quarter and 2 million in the fourth. While this news is clearly disappointing and should cause the stock to drop on Wednesday, October 1, we believe that this is not the time to panic due to the following: - 1. The company will report results next Tuesday, August 7. We expect that much more detail will be provided as to the problems associated with the ramp of the K6, the steps the company is taking to remedy the issues and a timetable for the recovery. - 2. The K6 is still in the game. Many investors have feared that even if the K6 gets to the market, it will always be one step behind Intel. However, we believe the K6 is on track to ship 2 million units in the fourth quarter and more importantly, that the mix will be much more favorable that in the third quarter. We expect a higher volume of 200 and 233 MHz parts which will enable the company to show overall average selling price improvements. ASP improvement should enable the company to return to profitability exceeding that posited in the second quarter. - 3. We expect that Q4 earnings will rebound to $0.17, following a loss of $0.13 in the third quarter. - 4. 1998 still promises to be an excellent year for AMD. Just based on the fourth quarter run rate, AMD is positioned to sell 8 million K6 units but we think the actual number will run well over 10 million units. We remain confident that the company will execute plans to introduce faster versions of the K6 such as 266, 300 and 325 MHz parts in order to compete effectively with Intel's product roadmap. The mobile market also remains an attractive opportunity for the company. - In short, while the third quarter loss is disappointing, we remain positive on AMD's opportunities for the next 18 months. We think that the manufacturing difficulties will prove to be temporary and that K6 demand is extremely robust. We have not altered our 1998 estimate of $3.50 and reiterate our strong buy recommendation.

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