All, Courtesy of Albert:
Albert kindly requested that the following info be posted here.
Thanks, Albert
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03:36pm EST 30-Oct-97 Lehman Brothers (M. A. Gumport, CFA 1(212)526-5368/) AMD
Adv. Micro Dev: Management Visit Update
Ticker : AMD Rank(Prev): 1-Buy Rank(Curr): 1-Buy
Price : $22 3/4 52wk Range: $49 - 17 Price Target: $ 40
Today's Date : 10/30/97 @2:50pm
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 0.12E 0.12E 0.40E 0.40E
2nd: -0.26A@ 0.07A 0.07A 0.20E 0.20E 0.45E 0.45E
3rd: -0.28A@ -0.22A -0.22A 0.33E 0.33E 0.52E 0.52E
4th: -0.15A@ 0.01E 0.01E 0.45E 0.45E 0.68E 0.68E
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Year:$ -0.51A@ $ -0.05E $ -0.05E $ 1.10E $ 1.10E $ 2.05E $ 2.05E
Street Est.: $ 0.26E $ -0.04E $ 2.15E $ 1.79E $ ----E $ 2.23E
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 : -1.5 % Revenue (1997) : $ 2.44 Bil.
Shares Outstanding : 141.7 Mil. Proj. 5yr EPS Grth : NM
Mkt Capitalization :$3223.7 Mil. Dividend Yield : 0.0 %
Book/Price to Book : $14.42; 1.58x P/E FY97, FY98 : NM ; 20.7x
Net Cash Per Share : $-1.99 Convertible : NO
Disclosure(s) : G
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** MANAGEMENT MEETING UPDATE
******************************************************************************
YIELDS GOING UP; STILL NEED MORE. We just finished our meeting with AMD and
learned that yields are going up. A variety of top level executives indicated
that AMD was suffering ongoing substantial yield reversals on the K6 line.
However, after meeting with top management at AMD today, we are persuaded that
is not the case. AMD must make further progress, but yields having dropped
substantially in late August, have reversed more than halfway. We continue to
think the next six weeks is critical. AMD has delivered on price, delivered
on performance, and now needs to deliver on volume. The company seems to be
making progress.
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UBS SECURITIES EQUITY RESEARCH October 30,1997
Charles F Boucher (415) 352-5529 Christopher Bunn (415) 352-5525
______________________________________________________________________________
Price 80.25 | Prior EPS P/E
52 Week 102.00-51.88 | 12/1996A 2.91 27.6
Dividend 0.12 | 12/1997E 3.78 3.76 21.3
Yield 0.1% | 12/1998E 4.50 4.00 20.1
Shs. Out 1.8 Bil. |
Market Cap. 144.4 Bil. | 4Q EPS Est. 0.86 vs. 1.06 last year
______________________________________________________________________________
Summary Points
* We believe microprocessor unit shipments and bookings were somewhat weak in
October.
* Intel's November price cuts were deeper than expected, particularly for
Pentium MMX.
* It appears that microprocessor speed distribution remains skewed toward lower
speed grades.
* We think units could be flat in Q4 with a smaller blended ASP increase; we
are consequently trimming our revenue and earnings assumptions for Q4.
* Intel's rumored plan to introduce a low cost version of the Pentium II
processor for the low end consumer PC market would weaken the company's
proprietary position, in our view.
* Dilution of Pentium II's proprietary position in 1998 combined with the risk
of slower worldwide PC unit growth could cause additional downside risk to
revenue and gross margin; we are lowering our 1998 estimates and downgrading
our opinion to Hold.
* Slowing PC consumption in Asia and Japan is likely to push worldwide PC
growth below consensus expectations in 4Q97 and 1998.
Microprocessor demand remains sluggish in Q4
With October winding down, our industry checks indicate that microprocessor
unit demand has not shown any meaningful improvement versus the previous
quarter. This is a troubling trend, since Q4 is usually a period in which unit
demand is relatively strong. Recent conversations with our Asia/Pacific
analysts confirm lack of improvement in PC and motherboard build rates in the
December quarter. Intel's cautious outlook for the fourth quarter is being
fulfilled, and could conceivably weaken if unit shipments don't see significant
improvement in November and December.
Price cuts deeper than expected...
Intel's November price cuts were steeper than we had anticipated, particularly
for the Pentium MMX devices, which saw an average decline of 20%. We had
expected the Pentium MMX cuts to be in the 12-15% range. Pentium MMX will
account for about 75% of total unit shipments in Q4, making us revise our
blended ASP assumptions for the fourth quarter. We now expect total unit
shipments to be approximately flat with blended ASP up by only a few percent,
resulting in lower revenue growth in the quarter.
....and speed mix stuck in low gear
Further confounding the average selling price issue is our belief that demand
has yet to show a significant movement to higher speed grades. We think the 166
MHz Pentium MMX is still the highest volume seller in Intel's product line, as
it is the processor of choice for low end consumer PCs, which we all know has
been the highest growth segment of the market this fall. 166 MHz Pentium MMX
prices were cut by 23%, which could create additional pressure on ASP and
margins.
New low cost Pentium II offering dilutes ASP and margins
We expect Intel to discuss a new version of Pentium II targeted for the low end
consumer PC market at its analyst meeting next week. The new device will
eliminate the cache SRAM and some of the costly mechanical components to bring
the Pentium II subsystem cost down to levels that are compatible with PC system
price points in the $1000-$2000 range. The device will use a so-called "Slit 1"
interface, which we expect to be bus-compatible with the Slot 1 bus, and will
maintain the company's break away from Socket 7, which is used for the Pentium
and Pentium MMX chips, as well as AMD's K6 and Cyrix's 6x86 devices.
The introduction of the "Slit 1" version of Pentium II is likely to dilute
Pentium II average selling price in 1998 from current expectations. Since the
microprocessor chip cost will be comparable, we believe that diluting the
average selling price of Pentium II chips could also result in lower gross
margin percentage. It appears unlikely that total unit demand would increase
appreciably, so that the effect of the low cost Pentium II in 1998 would likely
be to create further downward pressure on revenue and gross margin.
PC growth outlook is muted by the Japanese and Asia/Pacific markets
While the stock market has gotten over the Asian flu, we have not at least in
regard to potential impact on the PC market. Table 1 shows current market
projections for worldwide PC units by region. In order for the total PC market
to achieve 15.5% unit growth in 1997, market projections assume that Japan will
grow by 21% (down from 39% growth in 1996) and Asia/Pacific will grow by 19%
(down from 26% growth in 1996). With the weakness PC sales experienced in Japan
in Q3 and the risk of additional weakness as the Japanese economy contracts and
currency weakens, we believe the 21% growth rate assumption for Japan could be
optimistic. The outlook for the Asia/Pacific region is not optimistic either.
PC sales have already felt a negative impact in Korea and several of the
Southeast Asian countries due to currency devaluations and a weakening economy.
China has remained a healthy market and has offset weakness in the rest of the
region, but there is clear risk to the assumption of continued strong growth in
the Asia/Pacific region.
Table 1: Worldwide PC Unit Shipments by Region, 1995-2000 (1,000 units)
1995 1996 1997 1998 1999 2000
United States 23,031 26,484 30,782 34,606 38,189 42,038
Y/Y growth (%) 23.2 15.0 16.2 12.4 10.4 10.1
% of WW 39.1 38.3 38.5 37.7 36.6 35.7
Western Europe 15,294 16,679 18,390 19,616 21,152 22,987
Y/Y growth (%) 18.2 9.1 10.3 6.7 7.8 8.7
% of WW 26.0 24.1 23.0 21.3 20.3 19.5
Asia/Pacific 7,049 8,881 10,574 13,059 15,886 19,266
Y/Y growth (%) 29.8 26.0 19.1 23.5 21.6 21.3
% of WW 12.0 12.8 13.2 14.2 15.2 16.4
Japan 5,822 8,099 9,810 12,090 14,470 16,360
Y/Y growth (%) 66.3 39.1 21.1 23.2 19.7 13.1
% of WW 9.9 11.7 12.3 13.2 13.9 13.9
ROW 7,693 9,071 10,407 12,536 14,668 17,093
Y/Y growth (%) 19.1 17.9 14.7 20.5 17.0 16.5
% of WW 13.1 13.1 13.0 13.6 14.1 14.5
Worldwide 58,889 69,214 79,963 91,907 104,365 117,744
Y/Y growth (%) 25.2 17.5 15.5 14.9 13.6 12.8
Source: International Data Corporation, 2Q97 |
