Tony - Re: Erika Klauer "Maybe AMD is the only company they let her cover. She has to say something. ;-)"
Here is Klauer's GLOWING UPGRADE of AMD in late 1998, just a month or two before AMD started preannouncing STEEPER and STEEPER LOSSES every few weeks:
{=====================================}
AB: AMD: Visibility Into 4Q 1998 And 1999 Improving--Raising Estimates-Strong --
BT Alex. Brown Incorporated (E. Klauer/N. Bolton) AMD
Klauer, Erika 212-237-2234 11/03/1998
Bolton, N Quinn (212) 237-2436
BT Alex. Brown Incorporated
----------------------------------------------------------------------
ADVANCED MICRO DEVICES, INC. (AMD) "STRONG BUY"
Visibility Into 4Q 1998 And 1999 Improving--Raising Estimates And Ugrading Investment Rating To "Strong Buy" From "Market Perform"
----------------------------------------------------------------------
Date: 11/03/1998 EPS: 1997A 1998E 1999E
Price: 23.13 1Q 0.09 (0.39) NE
52-Wk Range: 31 - 13 2Q 0.07 (0.45) NE
Ann Dividend:0.0 3Q (0.22) 0.01 A NE
Ann Div Yld: 0.00% 4Q (0.09) 0.15 NE
Mkt Cap (mm):3,284 FY(Dec.) (0.15) (0.68) 1.25
3-Yr Growth: 20% FY P/EPS NM NM 18.50X
CY EPS (0.15) (0.68) 1.25
Est. Changed Yes CY P/EPS NM NM 18.50X
----------------------------------------------------------------------
HIGHLIGHTS:
We are upgrading our investment rating on Advanced Micro Devices shares to "strong buy" from "market perform" due to improving visibility into the Company's microprocessor business in both 4Q 1998 and 1999.
Demand for the Company's K6 microprocessors remains robust, and in our opinion, will drive strong results for 4Q. We estimate that AMD currently controls approximately 70% of the market for sub-$1,000 PCs.
Looking into 1999, the Company's product road map remains on schedule. We expect AMD to introduce the 450 MHz version of the K6-2 microprocessor in 1Q 1999, the K6-3 in 2Q 1999, and the K7 in 1H 1999.
We expect unit shipments of microprocessors to continue to grow over the next five quarters. Specifically, we forecast 4.7 million units of the K6 to ship in 4Q 1998 and 20 million K6 units to ship in 1999. In addition, we believe the Company will ship 2 million units of the K7 in 1999.
We have increased our 4Q 1998 and 1999 EPS estimates to $0.15 and $1.25 from $0.12 and $1.00, respectively. Our new twelve month stock price target is $31, or 25x our 1999 EPS estimate.
DETAILS:
We are upgrading our investment rating on Advanced Micro Devices shares to "strong buy" from "market perform" due to improving visibility into the Company's microprocessor business in both 4Q 1998 and 1999. Demand for the Company's K6 microprocessor remains robust, and in our opinion, will drive strong results for 4Q. We estimate that AMD currently controls approximately 70% of the market for sub-$1,000 PCs. Looking into 1999, the Company's product road map remains on schedule. We expect AMD to introduce the 450 MHz version of the K6-2 microprocessor in 1Q 1999, the K6-3 in 2Q 1999, and the K7 in 1H1999.
We expect unit shipments of microprocessors to continue to grow over the next five quarters. Specifically, we forecast 4.7 million units of the K6 to ship in 4Q 1998 and 20 million K6 units to ship in 1999. In addition, we believe the Company will ship 2 million units of the K7 in 1999. We have increased our 4Q 1998 and 1999 EPS estimates to $0.15 and $1.25 from $0.12 and $1.00, respectively. Our new twelve month stock price target is $31, or 25x our 1999 EPS estimate. In addition, we believe the multiple expansion is possible as investors become more comfortable with AMD's ability to execute its 1999 plan.
We would like to emphasize the following five points on AMD.
1.) Demand for the K6 microprocessor remains strong, especially at clock speeds of 350 MHz and above. We expect the Company to ship 4.7 million K6 units in 4Q 1998, up from 3.8 million units in 3Q 1998. Given the strong demand and the product mix transition to higher clock speed (and hence higher ASP) microprocessors, we expect that AMD's blended ASP for its microprocessor business to remain flat in 4Q 1998 at just over $100 per microprocessor.
2.) The Company continues to enjoy very strong acceptance at the low-end of the PC market, particularly in the market for sub-$1,000 PCs. We estimate that AMD currently holds an approximate 70% share of the market for sub-$1,000 PCs.
3.) We expect an announcement regarding the Company's 400 MHz K6
microprocessor in the next few weeks. In addition, the Company remains on track to introduce the 450 MHz version of the K6-2 in 1Q 1999 and the K6-3 microprocessor,which includes an integrated level-2 cache, in 2Q 1999. With the introduction of the higher clock speed K6-2 parts and the new K6-3 microprocessors, we expect that AMD will be able to maintain its dominance of the market for low-cost computers in 1999. Currently, we expect the Company to ship 20 million units of K6 family microprocessors in 1999 and to hold its blended microprocessor ASP at current levels (approximately $100) due to anticipated transitions to higher clock speed parts.
4.) We believe the Company is on track to introduce its next generation K7 microprocessor in late 1H 1999. The K7 is expected to be introduced at clock speeds of 500 MHz. Currently, we believe that the Company will ship 2.0 million units of the K7 in 1999. The K7 should carry significantly higher ASPs than the K6.
5.) AMD has bolstered its management team with the appointment/hiring of two executives. Last week, S. Atiq Raza, executive VP and chief technical officer, was promoted to co-COO and is scheduled to be named president and COO at the 1999 annual shareholder meeting. In addition, AMD recently hired Mr. Fran Barton as CFO. Prior to his hire at AMD, Mr. Barton was the CFO for Amdahl.
While we are upgrading our investment rating on the shares of AMD to "strong buy" from "market perform", the stock is not without risks. Below, we highlight four risks that we believe investors should consider.
1.) Execution risk. AMD has had a poor history of executing to plan. Investors need look no further than AMD's last two generations of processors, the K5 and the K6, to find examples of poor execution. Difficulties ramping the Company's 0.25-micron process in Fab 25 led to low yields and lower-than-expected clock speeds, which adversely impacted K6 revenues earlier this year. However, AMD has improved the 0.25-micron process and solved its manufacturing problems. We believe this is important as AMD will be ramping future generations of the
K6-2, K6-3 and K7 on its existing 0.25-micron process. As this process is now mature, we believe the level of execution risk is significantly lowered.
2.) AMD's non-microprocessor businesses remain weak. Visibility in AMD's networking and communications, PLD and flash memory businesses remains extremely low and order levels are weak. We expect sequential declines of 3-5% over the next few quarters in each of these businesses.
3.) Acceptance of the K7 in the high-end desktop, server and workstation markets remains a risk. However, we believe AMD's decision to license the existing 21264 Alpha microprocessor bus from Digital/Compaq will allow the Company to take advantage of the existing Alpha architecture (chip sets and motherboards), and reduce the risk of adoption for its PC customers. In
addition, we believe AMD should be able to leverage existing relationships with Compaq, Hewlett-Packard, IBM, Packard Bell NEC and Acer in marketing the K7.
4.) PC unit growth. If PC unit growth fails to meet expectations, this would likely have an adverse impact on AMD. Recently, many companies have been reexamining their IT budgets, especially financial service companies, in the face of lower earnings.
Additional Information Available Upon Request
The following stock(s) is (are) optionable: Advanced Micro Devices, Inc. There is a (are) convertible issue(s) outstanding on Advanced Micro Devices, Inc..
First Call Corporation - all rights reserved. 617/345-2500
END OF NOTE
{====================================}
Paul |
