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

To: Scot who wrote (89389)	1/25/2000 12:39:00 PM
From: Yougang Xiao	Respond to of 1571976

From Albert: 07:57am EST 25-Jan-00 Gerard Klauer Mattison & Co. (Geraghty, J. 212-885-4003) AMD--Business Continues to be Strong; Athlon Supply is Excellent--BUY Advanced Micro Devices (AMD)--Business Continues to be Strong; Athlon Supply is Excellent--BUY John M. Geraghty, CFA Harry H. Sun (212) 885-4003 (212) 885-4023 jgeraghty@gkm.com hsun@gkm.com January 25, 2000 ____________________________________________________________________________ Price: 34.50 52-Wk Rng:43.75-14.56 Price Target:$60 S&P 500: 1402 Shrs Out/Mk Cap: 153Mil/$5.3Bil 5 YR Est Growth Rate: 15% Div/Yield: N/A L-T Debt/Cap: 42% Avg Daily Vol: 3.1 Mil ____________________________________________________________________________ FY Ends -- EPS -- Dec. Curr Prior P/E 99A (2.15) N.M. 00E 1.80 19.2x 01E 2.50 13.8 ____________________________________________________________________________ Qtrly -- 1Q -- -- 2Q -- -- 3Q -- -- 4Q -- EPS Curr Prior Curr Prior Curr Prior Curr Prior 99A $(0.81) $(1.08) $(0.72) $0.46 00E 0.30 0.41 0.51 0.58 01E 0.47 0.55 0.68 0.80 ____________________________________________________________________________ o We believe the processor business has been strong in the first quarter, potentially resulting in sequentially-up total revenues for AMD. For the first quarter, we expect continuing shortages in Intel's high-end desktop segment to benefit AMD. In addition, we believe the end of Y2K lockdowns will result in a strong first quarter for the overall microprocessor market. As a result, we believe AMD could surpass our conservative 1Q Athlon forecast of 1 million units. o AMD matches Intel price cuts on high-end desktops processors. Today, Intel cut prices on Pentium III desktop microprocessor prices by about 10%- 30%, as expected. AMD matched the price cuts, with Athlon processors now selling at about an 8% discount versus comparable Pentium III (Coppermine) products. Because of its competitive product offerings, we believe AMD has reduced its discount relative to comparable Intel products. o We believe it is unlikely that Intel will launch an all-out "price war" in the high-end desktop market. In the past, Intel could afford to wage a price war against AMD as AMD's products were at the low-end of Intel's product spectrum. With its "segmentation strategy," Intel could afford to subsidize its low-end price battle with high-margin Pentium III and Xeon processors. Now that AMD has a competitive product at the high end, we believe it is unlikely that Intel will launch a price war in the high-end desktop market and substantially hinder the profitability of its core business. o The flash business continues to be underappreciated, in our opinion. AMD announced today a three-year agreement with Samsung under which AMD will supply Samsung's Wireless Terminal Division with about $400 million worth of flash memory. We view this announcement as another sign that the flash market continues to tighten, with some suppliers on allocation for the next 2- 3 quarters. Given the booming end markets for which flash memory is used, we expect similar long-term contracts for AMD with other customers to guarantee supply. The flash business could grow to over $2 billion in 2001, up from $773 million in 1999. With revenues up 33% sequentially and units up 16% sequentially in 4Q, we believe our forecast is readily achievable. In addition, given the current tight supply situation, we believe this segment will be extremely profitable as ASPs continue to rise. Assuming a 20% net margin, we believe the flash business could generate about $2 in EPS for AMD in 2001. o The Athlon manufacturing ramp is on track. In the fourth quarter, the company shipped about 900K units and sold about 800K with an ASP slightly below $250. The target for Athlon production was about 1 million units, and the company achieved that goal. Now with chipsets from VIA and other Taiwanese producers becoming available, AMD's shipment goals are 25 million units overall in 2000. For 2000, we are forecasting $4.3 billion in total revenues, with about 7.6 million Athlon (K7) units with an ASP of $190 and 15.8 million K6 units at a $48 ASP. We believe our Athlon unit forecast is quite reasonable. INVESTMENT CONCLUSION Reiterate BUY rating. When we recommended AMD, we considered it a play on the booming flash memory market with potential upside in the microprocessor business. We now believe flash sales could reach $2 billion (39% of total sales) for AMD in 2001. In addition, the outlook for AMD's microprocessor business is strong. AMD has proven near-term ability to ramp the Athlon, and all wafer starts have been at 0.18-micron production technology since the end of October. Should this production ramp continue, and we are assuming that it does, AMD could surprise investors with better EPS results than we are estimating, just as it did in the fourth quarter that is now ending. We consider the valuation on AMD still to be compelling at 1.4x our 2000 sales forecast. Our 12-month price target is $60. As always, the risk will be the microprocessor segment. Companies mentioned (closing price as of January 24, 2000): Dell+ (DELL - $41.69 - BUY) -> End of Note <-