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To: Jozef Halada (41811 )
From: Maxwell Wednesday, Nov 18 1998 11:38PM ET
Reply # of 41824
Jozef:
Here is the complete report. Thanks to Albert A.
_____________________________________________________________________
01:36am EST 18-Nov-98 Morgan Stanley\DW (Edelstone/Cross/Gerhardy) AMD
INTC NSM
SEMICONDUCTORS : VIEW FROM COMDEX : MICROPROCESSOR
DEMAND IS STRONG AND... / P1
Semiconductors (I/CPR): View From COMDEX: Microprocessor Demand Is
Strong And Rambus Is On Track
Mark Edelstone/John Cross/Louis Gerhardy (415) 576-2381
Date: November 18, 1998
Industry: Semiconductors Type: Industry Report
___________________________________________________________________
KEY POINTS
- Following two days at the Fall COMDEX trade show in Las Vegas, we
believe PC demand is strong, and the new microprocessors (MPUs)
scheduled to be introduced during the next several quarters suggests the
price/performance of PC systems should continue to improve significantly
throughout next year.
- Based on our discussions with Advanced Micro Devices (AMD--$27,
Neutral), Intel (INTC--$108 1/2, Strong Buy), and National Semiconductor
(NSM--$13 1/2, Neutral) we believe MPU demand is extremely strong, and
it appears that all three vendors can sell everything they can make at
this time.
- Given the current roadmaps of AMD, Intel, and National, we believe MPU
product positioning will increase in importance next year. While we
believe it is too early to be negative, we see the potential for excess
MPU supply in 1999 if all three suppliers execute to their current
plans.
- NeoMagic (NMGC--$19 1/2, Strong Buy) is the dominant suppler (52%
market share) of graphics controllers for notebook PCs, and based on
discussions with the company, we believe notebook PC demand is strong,
and as expected, the company's January quarter got off to an
exceptionally strong start.
- We believe Rambus (RMBS--$74, Outperform) had a strong showing at
COMDEX, and the company's suite highlighted the fact that the necessary
infrastructure support for Direct Rambus DRAMs has continued to gain
momentum. Most important, we believe Intel has started to sample its 820
chipset (code named Camino), and it appears that things are on track to
launch the first Direct Rambus DRAM-based PCs in the second quarter of
1999.
AMD Should Be Able To Significantly Strengthen Its MPU Product
Offerings. Despite difficulty with its initial production ramp last
year, we believe AMD's MPU manufacturing operations are doing extremely
well, and we believe the company's upcoming product
offerings will be well received by the PC market. AMD shipped 3.8
million K6 MPUs for $381 million last quarter, and we believe strong
demand will enable the company to ship at least 5 million units for $500
million or so in the current quarter. Based on strong demand, we believe
AMD is on track to report a large positive earnings surprise in the
fourth quarter, and a better appreciation of the company's MPU product
roadmap suggests our 1999 earnings estimate is too low.
The high end of AMD's MPU product line is the 400 MHz K62, and the
company's next generation K6 MPU (code named Sharptooth) should be
officially introduced in March at 450 MHz. The Sharptooth design will
incorporate 256K of cache memory to the current K62 design, and AMD's
demos suggest that it will outperform a comparable speed Pentium II from
Intel by approximately 15%. We believe AMD will begin initial shipments
of the Sharptooth MPU in the early part of the first quarter, and when
compared to Intel's product offerings, it should provide AMD with solid
demand, incremental pricing power, and the potential to penetrate new
customers. Furthermore, we believe Sharptooth will allow AMD to increase
its share of the notebook PC market and enhance its chances of
penetrating the corporate market.
We have previously stated that we thought AMD stole the show with its K7
MPU at the recent Microprocessor Forum. We believe AMD's demo at COMDEX
suggests that K7 has the potential to enable the company to be extremely
competitive with the high end of Intel's product offering in the second
half of next year. Although there will be significant
execution risk leading up to the company's expected launch in the middle
of 1999, AMD's demo suggested that the performance of the
K7 is compelling. More important, AMD has already completed the design
and the company has working silicon of the core logic chipsets, as well
as the motherboard reference designs necessary to support the K7
infrastructure.
And National Semiconductor Will Continue To Focus On The Price Sensitive
Computer Segments.
Ever since the company acquired Cyrix last year, National Semiconductor
has articulated its vision of enabling low-cost X86- based PCs and
information appliances. Although weak Asian demand, an inventory
correction, and poor execution has led to negative earnings surprises
and significant losses during the last couple of quarters, it appears
that National's business has started to improve.
National's MPU demand is strong, unit shipments are growing,
manufacturing costs are declining as the company ramps up its internal
capacity, and the elimination of IBM as a second source should promote
incremental pricing power. In addition, we believe National's analog
business has started to improve from the depressed levels experienced in
the last two quarters. Consequently, we believe National may be able to
exceed expectations in its November quarter, and we believe there is
upside potential to our fiscal 1999 estimate of a loss of $1.60 per
share.
Thus far, National has enjoyed significant success in the low end of the
MPU market, and we believe the company will ship around two million
units in the November quarter. In order to be more competitive with AMD
and Intel, we believe National is working hard to ramp up its
0.18-micron process technology. We expect National to introduce a next
generation MPU that uses its Cayenne core, 256K of cache memory, and a
socket 370 pin out (compatible with Intel's upcoming Celeron solution)
to remain competitive in the low end of the market in the second half of
next year.
While Intel Will Continue To Focus On Market Segmentation And Cost
Reductions Intel has clearly benefited from the normal seasonal uptick
in PC demand and the end of the PC inventory correction that plagued the
market in the first half of this year. Based on solid MPU demand and the
cost benefits derived from the transition to its 0.25-micron process
technology, we believe consensus estimates for Intel remain too low for
this year and next. Based on our belief that the MPU market will become
more competitive next year, we believe Intel's
transition to its 0.18-micron process technology, its renewed focus on
cost, and its ability to continue to segment the PC market will be the
keys to the company's success in 1999.
Following a relatively poor solution (known as Covington) that was
rushed to market in the second quarter of this year, we believe Intel's
current version of Celeron (code named Mendocino) is an extremely
attractive product. In order to reduce its own manufacturing costs and
reduce the manufacturing costs of the PC manufacturers, we believe Intel
will introduce a socket 370 version of Celeron in December. We expect
Intel to increase the speed of Celeron to at least
400MHz in the first quarter of next year, and we believe the socket 370
version will rapidly displace the Slot 1 alternative. While faster and
socket-based versions of Celeron should make Intel more competitive on
the low end of the market, we believe the company will position Pentium
IIs with the Katmai instruction set and speeds above 500 MHz as its
mainstream solution for the corporate market in 1999.
Notebook PC Demand Is Strong And NeoMagic's Roadmap Remains Compelling
NeoMagic reported a large positive earnings surprise in the October
quarter, and the company shipped more than two million notebook PC
graphics controllers to surpass 50% market share for the first time. We
believe near-term demand is strong, NeoMagic's January quarter is
front-end loaded, and we believe the company has now shipped more than
10 million units since its inception.
NeoMagic showed demos of NMG 6 at COMDEX, and NMG 7 should begin
sampling next Spring. We believe these new products should enable the
company to continue to gain market share during the next year or so.
More important, the company remains focused on using its leading-edge
embedded memory design capabilities and know-how to diversify its
product line into multimedia-based products for mobile applications,
such as DVD drives and digital cameras.
Direct Rambus DRAM Momentum Remains Solid And The Schedule For
Deployment Appears To Be On Track
In order to eliminate system performance bottlenecks that exist from the
inability of DRAMs to keep up with high-speed MPUs, Rambus has created a
new architecture, known as Direct Rambus DRAMs. While Rambus' previous
generation of DRAMs, known as Concurrent Rambus DRAMs have enjoyed
success in the consumer and PC graphics markets, Direct Rambus DRAMs
have been positioned for PC main memory applications. Thus far, we
believe Direct Rambus DRAMs are on track to be launched in Katmai-MPU
based PCs in the second quarter of next year.
We believe Rambus' showing at COMDEX clearly illustrated the momentum
behind the architecture, as the company displayed memory devices,
modules, and information on the testers necessary to support a high-
volume production ramp. Even though Siemens has been late to adopt the
Rambus technology, they showed an extremely competitive die size (58
square millimeters), and our discussions with Hewlett Packard suggest
the industry should have ample memory testers to support the necessary
production ramp. It appears that the latest generation memory testers
are only needed for 10%-15% of the overall test time for Direct Rambus
DRAMs, and the installed base of testers used to support SDRAMs are
adequate for the balance of the test procedures.
While the DRAM, module, and tester companies have continued to execute
within their expected time commitments for Direct Rambus, the bulk of
our concern about the timing of next year's product ramp has centered
around Intel's core logic chipset solution. However, it appears that
Intel has remained on schedule to introduce a production worthy part in
the second quarter of next year. Based on inputs from contacts at
COMDEX, we believe Intel has recently started to sample key PC and
motherboard companies with its 820 chipset (code named Camino).
____________________________________________________________________
Maxwell
------
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