My Position on AMD...
I just went long AMD at 19 15/16 share. I then inserted the July 17.5 puts to limit downside risk against a catastrophe. (I have a way of entering stocks just before catastrophes -- ASND, CYMI, WDC, etc.)
Anyway, here is my reasoning. It is something I have not heard before, so I will lay out my theory and invite comments.
I believe AMD is the missing piece in Compaq (CPQ)'s bid to become a one-stop alternative to Intel. Here are the data:
1) Compaq is number one in both desktops, x86 workstations and servers.
a) desktops are suffering from sub-$1000 problem -- margins are thin
b) x86 workstations are soon to be a commodity once Gateway, Dell, Micron and everyone else have an Intel Merced solution -- declining margins are creeping up the food chain, which is obviously bad.
c) super-servers will soon be a new market as Microsoft Terminal Server for Windows NT and other thin-client solutions use a fast server and a thin client
2) Compaq has acquired Digital Equipment Corporation (DEC).
a) Compaq gets worldwide service and support organization, critical for cementing customer loyalty, providing a cushion against the above, and otherwise establishing leadership in the industry.
b) Compaq gets Alpha, though not the outdated fab in Massachusetts.
Missing Pieces.
a) From recent issue of Byte, AMD considering implementation of Alpha EVA bus as alternative to Intel Slot 1. This is technically and commercially feasible.
b) Today, NSM/CYRX and Intel agree to share Slot 1, excluding AMD.
c) DEC and CPQ are two largest consumers of AMD CPU's -- whither AMD?
d) AMD shareholders are looking for new management.
Synthesis: Huge synergies exist between AMD, CPQ and DEC.
a) Alpha 21264 needs 0.25 micron technology. Digital didn't want to spend the $1billion for a new fab. AMD has 0.25 micron at Austin Fab 25 and 0.25 and below at Dresden, Germany Fab 30.
b) AMD needs volume to make K6 profitable, CPQ supplies this with K6 desktops and notebooks.
c) CPQ needs proprietary advantages: AMD supplies this with cheap K6's, Alphas in super-servers, K6/Alpha derivatives for future.
d) A new architecture needs worldwide support -- AMD/CPQ/DEC has worldwide support.
Bottom line.
The acquisition of AMD by none other than Compaq has huge potential. The two mega-fabs, assuming an improvement in yields, can keep Compaq supplied with attractively priced K6's and Alphas. For interim Pentiums, CPQ uses DEC's credit with Intel from the recent litigation settlement. An alternative K6/Alpha helps Compaq compete in the high-end server and workstation markets. For a company the size of CPQ, the $3 billion for AMD is a pittance, especially with book value at $15/share.
Even if the merger failed to secure an alternative supply of chips, it would keep Intel's domination in check. Microsoft would be pleased to have a counterweight to Intel, witness DirectX support for AMD and NSM 3d extensions. Replacement of Sanders with a competent management team would drive AMD stock to 30 on that news alone. Enunciation of this more ambitious plan would do God knows what, but it would be big.
Anyone else think that AMD with DEC is the ticket to CPQ becoming the equal of Intel? What would happen if it did?
Matt |
