Richard, All - LB downgrade
10:25am EDT 1-Oct-97 Lehman Brothers (M. A. Gumport, CFA 1(212)526-5368/) AMD
Adv. Micro Dev: Preannounces Even Worse Third Quarter 1997
Ticker : AMD Rank(Prev): 1-Buy Rank(Curr): 1-Buy
Price : $32 9/16 52wk Range: $49 - 14 Price Target: $ 43
Today's Date : 10/01/97
Fiscal Year : DEC
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EPS 1996 ----1997-------- ----1998-------- ----1999-------
QTR. Actual Prev. Curr. Prev. Curr. Prev. Curr.
1st: 0.18A@ 0.09A 0.09A 0.30E 0.25E 0.47E 0.45E
2nd: -0.26A@ 0.07A 0.07A 0.43E 0.37E 0.53E 0.50E
3rd: -0.28A@ -0.04E -0.36E 0.47E 0.43E 0.55E 0.55E
4th: -0.15A@ 0.24E 0.20E 0.55E 0.55E 0.80E 0.75E
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Year:$ -0.51A@ $ 0.35E $ 0.00E $ 1.75E $ 1.60E $ 2.35E $ 2.25E
Street Est.: $ 1.03E $ 0.42E $ 2.97E $ 2.34E $ ----E $ ----E
E-Estimate. @-Includes: 1Q96 $-0.06 merger, $+0.18 stock sale; 2Q96 $+0.07
capital gain; 3Q96 $-0.03 layoff; 4Q96 $-0.01
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Return On Equity : -1.8 % Revenue (1997) : $2.57 Bil.
Shares Outstanding : 147.9 Mil. Proj. 5yr EPS Grth : NM
Mkt Capitalization :$4816.0 Mil. Dividend Yield : 0.0%
Book/Price to Book : $14.13; 2.30x P/E FY97, FY98 : NM ; 20.4x
Net Cash Per Share : $-1.22 Convertible : No
Disclosure(s) : G
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** AMD PREANNOUNCES LARGER THIRD QUARTER 1997 LOSS; KEY NEWS ON PRICING
UNCLEAR; PENDING FURTHER CLARIFICATIONS, WE WOULD BE AGGRESSIVE BUYERS AT $25.
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AMD AFTER THE SEPTEMBER 30 CLOSE PREANNOUNCES LARGER THIRD QUARTER 1997 LOSS.
On September 3, AMD already indicated that a small third quarter 1997 loss
would be recorded because a yield shortfall would limit K6 sales to only about
1.0 million units (AMD began the quarter indicating it would make and sell
1.0-2.0 million units). Last night's news reconfirms that AMD made and
shipped 1.0 mil. K6s third quarter 1997 (nearly triple second quarter 1997's
358,000 units) and still expects to ship about 2 million K6s fourth quarter
1997, but, apparently, expenses involved in the yield shortfall were higher
than anticipated.
KEY FACT UNCLEAR: NEWSRELEASE INDICATES SALES ARE "LOWER", BUT THE RELEASE IS
AMBIGUOUS AS TO WHETHER SALES ARE 1)SEQUENTIALLY LOWER, 2) LOWER THAN
PREVIOUSLY INDICATED, OR 3) LOWER THAN ORIGINALLY ANTICIPATED. Our model
expected AMD's third quarter 1997 sales 8% above second quarter 1997 based on
an 85% increase in K6 sales and a slight increase in all non-X86 sales. If the
news is alternative 1 or 2 (cut sales forecasts more), that means pricing is
worse than expected on K6; if alternative 3, it means largely a "1-time" EPS
shortfall related to costs, not pricing.
PENDING CLARIFICATION FROM MANAGEMENT REGARDING "LOWER" REVENUES, WE ARE
INTERPRETING THIS NEWS IN A RELATIVELY OPTIMISTIC FASHION AS STILL 90% A COST
ISSUE, 10% A PRICE ISSUE. As a result, we now project 1997 EPS at $0.00 (old:
$0.35), 1998 at $1.60 (old: $1.75), and 1999 at $2.25 (old: $2.35).
OUR BEST BET IS AMD COMES ROARING BACK IN THE NEXT 6 MONTHS (WE HAVE ONLY
LOWERED OUR 1-YEAR TARGET FROM $47 TO $43), BUT WE WOULD BE VERY CAUTIOUS THIS
MORNING AND LOOK FOR OPPORTUNITIES TO BUY AGGRESSIVELY AT $25.
RECAP OF NEGATIVES: Consensus projections have been very high. The entire
microprocessor (MPU) sector is undergoing changes as market share at the
leader shifts from rising (1994-1997) to falling. Price declines are becoming
increasingly aggressive, and new product introductions are moving in a very
unpredictable fashion (MMX, Tillamook). The warning of "lower" revenues does
suggest the problem is not strictly yield but also may have a pricing element,
too; tougher pricing would be a longer term problem. In any case, the yield
problem obviously has been more costly than expected (raises questions as to
whether AMD's key fab is outdated), and the time schedule for introduction of
an integrated cache K6+ seems to have pushed out to the third quarter of 1998
from the second quarter of 1998. |
