Joseph, re; AMD questions
I can't give an intelligent response on AMD's costs/yields. You might want to ask these questions of Paul Engel.
Lehman Bros believes that Intel and AMD will be 100% 0.25 by the end of 1998.
Everyones estimates for Intel 1997 earnings are $3.80, +/- a few cents.
Earnings estimates for 1998 range from $3.80 (Lehman Bros) to $4.11 (consensus). It should be noted that in early October these estimates were $4.35 and $4.69 respectively. These are pretty significant cuts.
My guess is that AMD can produce >8 Mil units of K6 this year, slightly less than 10% of total CPU shipments into PC's. Additionally, Cyrix/NSM will capture some additional share of market with their 6X86/mediaGX products. IDT will capture some portion of the very low end market, but I have no idea what share this represents. Throw in IBM and one can extrapolate that the competition has the capability to take >25% market share.
Lehman Bros projects Intel will come out of 1998 with 77% of Q4 units, AMD 14% and Cyrix/Others at 9%. Note that they forecast Intel will have 90% of dollars, representing the higher prices on the Intel chips. It's also apparent that Lehman see's AMD shipping more than 8 Mil units this year.
AMD's main threat is the significant price erosion in CPU's. Intel will remain the dominant supplier of PC chips, if for no other reason than their fantastic manufacturing capacity. So the real question for the investor is what impact will AMD have on forward looking margins? If recent history is any indicator, this may be significant.
While sub-zeros have captured the attention of the analysts, I think we need to look at PC prices across the board. Who would have imagined six months ago that HP would sell a fully featured high end PII 266 for $1799? Or that HP would be selling P55C 166 MMX for $899, with monitor and printer! (Todays CompUSA ad). I've seen PII 233's for $1299. And with the recent price cuts on PII, it wouldn't surprise me to see a sub-0 PII 233 in the near future.
While PC's have long been commodity products, it's only recently that CPU's have become commodities. This is a new experience for Intel. While AMD has long been a competitor, in the past they were always competing with the prior generation product.
I'd prefer not to publish my earnings estimates, better to look at the pro's on that.
The downgrades after the last earnings miss may be a clue. Hopefully we won't see any more misses. I think PUTS represent some cheap insurance.
As usual, these are my opinions and interpertations, and don't necessarily represent facts.
Regards, Gene |
