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Politics : Formerly About Advanced Micro Devices -- Ignore unavailable to you. Want to Upgrade?

To: greg nus who wrote (79275)	11/10/1999 2:18:00 PM
From: Yougang Xiao	Read Replies (3) \| Respond to of 1573813

10:32am EST 10-Nov-99 SoundView Financial Group (Scott Randall 203-462-7246) AM Advanced Micro Devices (AMD) Estimate Revisions Advance Micro Devices (AMD) Price: $21.06 Hold November 10, 1999 (FYE Dec.) F98 F99 F00 Curr. Last Yr. Ago Revenue ($M) 2764 4193 875 EPS -2.87 0.85 -0.18 Old Revenue 2542.1 2714 4193 824.5 595 686 Old EPS -.66 -2.99 0.85 -0.29 -1.10 .01 We are reducing our estimated loss for the current quarter on higher K7 unit assumptions. We believe that AMD's 4Q has gotten off to a stronger than expected start with K7 unit shipments likely to exceed earlier guidance. With AMD's products much more focused on consumer and SOHO users we believe that AMD stands to benefit from the expected seasonal strength as well as benefiting from increasing shipments of higher ASP K7s. Although we are not changing our estimates to reflect it, we believe it is also increasingly likely that AMD will sign a partner for its Dresden fab. Although the exact type of arrangement is hard to predict, we believe that the Company is likely to sign a partner to take part ownership of the fab. Successful completion of this type of deal could dramatically reduce AMD's carrying costs associated with Dresden and provide significantly earnings leverage in 2000 and into 2001. While we are not changing our rating, with AMD likely to have a better than expected quarter and with the possibility of significant financial leverage we believe the stock could move outside of its current trading range and move into the mid-to-upper-mid $20s. AMD's annual analyst meeting is tomorrow beginning at noon EST. * Operationally, we believe AMD is making progress with the company seeing improving yields on the K7: Although the K7 has always looked good on paper (i.e. architecturally, clock speed, floating point performance etc.) AMD's track record of past production difficulties has put the burden of proof on the Company. To date, we believe that K7 yields have been progressing down the learning curve at a rapid pace with yields, we believe, approaching 60%. * Although we believe that AMD's Athlon shipments continue to be constrained by motherboard availability (with Athlon relying on its own specialized chipsets) we do not believe this constraint has been as great as originally feared. Recall that AMD's guidance entering the quarter was to produce "more than 1 million units in the December quarter" while shipments were thought to be around the 800,000 level. We believe that both of these estimates are conservative. We have increased our K7 unit assumptions to 1.1 million units up from our former estimates of 900,000. * Flash continues to be strong: AMD's high-density Flash products are continuing to benefit from strong wireless growth and the move of phones to use higher density Flash. For the December quarter we are modeling a 9% Q-Q increase, a level that we believe could prove to be conservative. * AMD's plan to sell its communications group could provide a further infusion of cash, while further narrowing AMD's focus. In addition, We believe that AMD is seeing serious interest in its Dresden facility. Recall that last quarter the company indicated that it was seeking a partner to help share production at Dresden. If AMD is able to close on both of these efforts in early 2000, it could provide AMD with further breathing room on the balance sheet as well as providing additional earnings leverage in 2000 and 2001. AMD's longer term challenges continue to include: * Management and employee turmoil: The unexpected announcement of Atiq Raza's resignation from AMD's board, its president, COO and CTO came at perhaps the worst possible time for AMD. With the launch of the K7 in process- and AMD's key challenge to convince OEM's to adopt the K7 into product lines targeted at corporate- the abrupt resignation of Raza has been one more concern for OEM's to wrestle with. In addition, we believe that Raza's exit has negatively affected both investor and employee confidence. Raza was well regarded internally to AMD and was the heir apparent to Sanders. AMD has, we believe, also lost some key engineers associated with the K8 program. While employee turnover at Silicon Valley companies is a fact of life, we remain concerned that Raza's departure could cause this trend to accelerate. * Limited progress to date in moving into the corporate space: As we have noted previously, for AMD to gain market share and to move its blended ASPs to significantly higher levels, the company needs to gain success in the corporate market. While Athlon's performance and its multiprocessor support positions the company well from a technical perspective, we believe this challenge is still largely in front of the company. Our net from before.: Strategically, AMD's challenges may come down to one of scale. In a $35 billion market that requires $2 billion fab investments to be made every few years, the ability to fund these efforts is problematic. With AMD's microprocessor manufacturing efforts concentrated in only one fab, fab 25 in Texas, its difficulties are multiplied. Specifically, while Intel has the ability to migrate both processors and processes in multiple fabs, AMD has had to make all of these changes in a single location. Because of this, its manufacturing risks have been multiplied. Looking into 2000, when Dresden comes on line, we believe this could provide the company with in important benefit in that for the first time it will have two mainstream state-of-the-art fabs in which to migrate both processes and products simultaneously without having to concentrate its efforts all in one location. For AMD, the introduction of the K7 continues to represent a critical product transition for AMD. Success at positioning the K7 as a mainstream/high-end processor is critical to AMD's profitable participation in the PC/workstation/serer market. While we believe that the K7 is technically a very good product, we believe the challenge of AMD moving "up-market" will be significant with the burden of proof clearly on the company. +++++++++++++++++ Courtsey of Albert