Yougang, All - Sutro buy on amd with yields info
Regards
-Albert
12:31pm EDT 6-Oct-97 Sutro & Co. (CB Lee 415-445-8540) AMD INTC CYRX
10/3 EARNINGS PREVIEW;MICROPROCESSOR COMPANIES;AMD,INTC,CYRX
October 3, 1997
CB Lee (415) 445-8540
Susan Crossley (415) 445-8311
Earnings Preview
Microprocessor Companies: AMD, Intel, and Cyrix
September Quarter, 1997
Advanced Micro Devices (AMD/NYSE-$28 13/16) Despite
Second Disappointment, Outlook Is Promising; Buy
Earnings
Release Sutro Consensus Prior
Lst12
Date Estimate Estimate Quarter
Mos.
10/7 Adv. Micro Devices(c,o)AMD
$(0.10) $(0.11) $0.07
$(0.27)
AMD has pre-announced that its third quarter loss will be
"larger than anticipated" due to a revenue shortfall and
lower-than-expected yields on the 0.30-micron K6. Management
guidance was scant, but we have pared our revenue projection
for the quarter to $638 million, narrowing the gross margin
to 38% and reducing our EPS estimate from $(0.03) to
$(0.10). The company indicated that yields on the 0.30-
micron K6 have been somewhat disappointing, and we now expect
shipment of roughly a million units in Q3, contributing
about $200 million in revenues.
We expect sales of AMD's other products to be flat to
slightly down sequentially. Its flash memory business is
suffering from recent pricing pressures, so despite
increased unit sales, quarterly revenues should remain
about $180 million. We estimate that programmable logic
will contribute about $58 million to revenues, down a
couple million sequentially. Finally, AMD's communications
business has been comparatively weak, due to the delayed
release of new QuadPHY and Ethernet products. Last
quarter, sales of communications products totaled about
$50 million, and we expect a similar figure in the third
quarter.
Even though yields on AMD's 0.30-micron K6 have been
somewhat erratic recently, we believe there is reason for
optimism in Q4. The company appears to have achieved a
significant break-through in improving yields of its 0.25
micron K6 wafers. Recent "rocket lots" (experimental
batches) have yielded about 70 to 80 good die out of 375
candidates per 0.25-micron wafer (about 20% yield).
Previously, AMD's 0.25-micron K6 wafers were yielding
less than 10% good die. These 0.25-micron yields also
compare favorably with the 50 to 60 good die per 0.30-
micron wafer that AMD is achieving today. This translates
to a yield of 4050% per 0.30-micron wafer, as there are 140
candidates per wafer. Now that the company has developed a
process with 20% yields in its R&D fab, its task is to
transfer this process to Fab 25. Because Fab 25 is outfitted
with the newest equipment, we believe that a process that
works well at the R&D fab could produce even better yields at
Fab 25. All of this bodes well for contract wins in the
fourth quarter.
In addition to 0.25-micron shrink, AMD has two other major
R&D programs that are pushing the technology envelope. The
first is code-named "Sharktooth", and its mission is to
develop on-chip, 1-Mbit cache memory, which should improve
CPU performance. The second program, known as "Chomper",aims
to build a 100-MHz PCI bus, which should provide
significantly faster I/O performance than the competition;
Cyrix offers a 75-MHz PCI bus, and the current industry
standard is 66 MHz from Intel.
Although we expect AMD to announce a disappointing
quarter this Tuesday, we are optimistic about the fourth
quarter and beyond. With the 0.25-micron K6, AMD has the
potential to win other large OEM contracts--most likely
Compaq and/or Gateway. Based on decreased K6 revenue
guidance for the third quarter, we expect EPS of $(0.10).
However, updated guidance for the fourth quarter is for
about 2 million K6 units, which is in line with our model,
so we are standing by our EPS estimate of $0.54 for December.
We continue to rate AMD a Buy.
Intel (INTC/OTC-$93 1/4)
Intel Expected to Meet Expectations;
Potential Upside of $0.01-0.02; Hold
Release Sutro Consensus Prior 12 Mos.
10/14 Intel Corp. (c,o) INTC
$0.93 $0.91 $0.92 $3.82
We expect Intel to announce third quarter results in-line
with our EPS estimate of $0.93 on revenues of $6.3 billion.
We believe Intel shipped about 21 million units in the
quarter, compared to 18.5 million in Q2. Much as unit
sales are up 10% sequentially, ASPs are down about 10%, the
upshot being flat revenues in the third quarter. Through
stock buybacks and other income items, Intel may be able to
beat Street expectations by a couple of cents.
We estimate that Intel did 3-4 million units in turns
business in the September quarter, compared to a typical
quarterly figure of 1 million units in the past. We
believe this is the result of PC supplier build-to-order
programs, which are shortening product turnaround times in
the distributor channels. This effect has now begun to
reach back through the channels to Intel, increasing the
percentage of turns business and decreasing visibility for
the fourth quarter. Based on
existing bookings, we believe the most optimistic
guidance Intel can provide for the
fourth quarter is for flat revenues.
A potential source of upside in the fourth quarter is
increased ASPs. Our sources indicate that Intel is
pressuring motherboard manufacturers in Asia to increase
the percentage of Pentium II chips in their products. We
believe Intel is lobbying these manufacturers to make
Pentium II motherboards 30% of their total output for Q4.
If this strategy succeeds, the resulting increase in ASPs
could provide some upside to our fourth quarter EPS estimate
of $0.97. Hold.
Cyrix (CYRX/OTC-$33 1/8)
Cyrix On-Track to Meet Projections; Hold
Release Sutro Consensus Prior 12
Mos.
10/16 Cyrix Corp. (c,o) CYRX
$0.09 $0.04 $(0.27)
$(0.53)
We believe that Cyrix's September quarter should meet our
estimate of $0.09. The company is doing everything it
can to finish its final quarter as an independent company on
a high note by beating the consensus estimate. Our Q3
revenue estimate of $96 million and EPS of $0.09 remain
unchanged. Meantime, we believe that there are serious
discussions with Hewlett-Packard (HWP-$70 9/16) about a
potential OEM arrangement using Cyrix's MediaGX chip. This
would be the second major design win for the MediaGX--
following Compaq Computer's (CPQ-$75 1/16) success with
its Presario 2100 family. Finally, Cyrix's merger with
National Semiconductor (NSM-$41) is expected to close on
November 24. Hold. |
