AMD To Debut K7 at Comdex, Foils or Silicon?
Originally posted by Albert A.
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10:48am EST 13-Nov-98 Sutro & Co. (C.B. Lee (415) 445-8540) AMD
Advanced Micro Devices: General Outlook for Q4 Modestly Bullish--Accumulate
Sutro & Co.
RATING: ACCUMULATE
November 13, 1998 PRICE TARGET: $25-30
C.B. Lee, CFA (415) 445-8540
cblee@sutro.com
Nita DenHoy (415) 445-8311
ndenhoy@sutro.com
Advanced Micro Devices (AMD/NYSE - $27 1/2)(o) General outlook for Q4 Modestly Bullish; Accumulate
52-Week Range Shares Outstanding/Market Cap
$31 - $12 143.9 mil $3.9 Bil
Historical P/E Long-Term Dividend/ 3-Year Projected
Range Debt/Capital Yield Growth Rate
NM 24.6% Nil Nil 15%
1Q 2Q 3Q 4Q YEAR P/E PrvEst. Street
12/97A $0.09 $0.07 $(0.22) $0.09 $(0.15) NM
12/98E $(0.39)A $(0.45)A $0.01A $0.20 $(0.63) NM no chg $(0.70)
12/99E $0.22 $0.26 $0.30 $0.42 $1.20 22.9 no chg $0.94
Key Points
_ K6 unit shipments in Q4 likely to far exceed previous guidance of 4.5 million units.
_ K7 will be demoed at Comdex next week.
_ Outlook for other product groups also improving.
Discussion
AMD yesterday hosted both buy-side and sell-side analysts at its
corporate headquarters in Sunnyvale, California. The overall tenor of the meeting was modestly bullish. AMD's Sharptooth (a notebook-ready K6 plus 3-D plus 256K on-chip L2 cache; die size: 118 mm2) and K7 CPUs both appear to be on schedule for delivery in Q1 '99. We are leaving our EPS estimates unchanged. For Q4 and FY99, at $0.20 and $1.20, respectively. Accumulate.
K6 Unit Shipments in Q4 Should Exceed Previous Guidance of 4.5M units.
AMD CEO, Jerry Sanders, let slip during the meeting that K6 shipments could reach 4.7 million units in Q4. Compared with the previous guidance of 4.5 million units, this revelation is a yawner, and may even be negative, considering where the stock is at currently. Be that as it may, our checks suggest that the company is likely to ship more than 5 million K6 units in Q4 with the help of die bank inventory from Q3 and strong demand throughout the quarter. 400-MHz yields remain low as this version of the K6 incorporates re-designed transistors that are faster. While the schedule for 400-MHz K6s may have slipped a bit, it should still be possible for AMD to fulfill its promise of "several hundred thousand" K6s in Q4. Yields on the older 350-MHz K6 design, on the other hand, are stable and are currently running at better than
150 good dice per wafer out of approximately 300 candidates per wafer. At the meeting, management disclosed that the company has already shipped several hundred thousand mobile K6s.
K7 to Debut at Comdex Next Week. Billed as a 500-MHz device using 0.25m technology, the official target release date for the K7 is Q2 '99. However AMD's OEM partners such as Compaq and IBM are applying significant pressure on the company to pull in the K7's release date to Q1 '99. This ought to be possible because Irongate, the K7's cost-reduced chipset (this is a single-chip design versus the DEC Alpha's three chip solution) is fully functional and only has a few minor bugs remaining. The gating item remains the K7, which is
currently being fabricated in a 6-layer metal, 0.25m process (dice size: 184mm2). Even though early yields on the K7 have been acceptable, it is still not good enough for volume production - suggesting perhaps that the K7 will be targeted at server applications initially. Moving the K7 to a 0.18m process should reduce its dice size to less than 100mm2, making this version of the K7 highly suitable for volume manufacturing and very cost competitive.
Outlook for Other Product Segments also Improving. Revenues from Vantis (PLDs), non-volatile flash memory, and networking should exceed $300 million in Q4. Orders at Vantis and networking products have picked-up recently, and even in the non-volatile flash area, the price declines appear to have hit bottom in recent weeks. Customers inventories too appear to be at very low levels and this no doubt contributed to the recent slight pick-up.
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Maxwell |
