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

To: Mani1 who wrote (109065)	5/2/2000 2:09:00 PM
From: Petz	Respond to of 1577026

Mani, re:<I find it hard to see for AMD earning less than $1.65 in Q2!> Even Joe Osha at Merrill Lynch now thinks AMD will earn more than Q1: Advanced Micro Devices (AMD; $87 1/2; C-2-1-9) Raising Estimates (Joe Osha 212- 449-0930) o We visited with the management of Advanced Micro Devices last week and came away convinced that the company's profit recovery is still on track, and that the ramp of Athlon products is proceeding as planned. o We're also fine-tuning our numbers - our FY2000 earnings estimate has been raised to $5.75 from $5.62, and our current quarter estimate has gone from $1.15 to $1.18. o We're reiterating our intermediate-term Accumulate and long-term Buy recommendations - our 12-18 month price objective is $120. Here's some stuff from the full report (courtesy Albert) We were somewhat surprised to hear that AMD has already stopped all wafer starts of the older Athlon product. That means that all of the older Athlon products will be gone from AMD's sales mix by the end of the current quarter - AMD told us that all of the products in production have already been spoken for. (Petz: This means OEM's like the TBirds and Durons so much that they must have told AMD, "We'll take them as soon as the chipsets are available.") If the production ramp of the new products goes well, AMD's product mix will be substantially more competitive a quarter from now than it is now. If there are any problems, the financial impact will be substantial. Our talk with AMD Friday revealed no problems - indeed, the early yields on Thunderbird at both the Austin fab and the copper interconnect fab in Dresden have been encouraging - but investors will need to track the situation closely. Sales of flash memory products continue to be supply-limited. The sequential rate of revenue growth in Q2 is still expected to decline as a result of capacity availability, but AMD remains confident that sufficient capacity will come on line to return to double-digit sequential revenue growth in Q3 and Q4. We've been impressed by how well the FASL joint venture with Fujitsu has worked - AMD has managed to maintain access to world-class manufacturing capacity without having to foot the investment by itself. We think that our revenue estimates of $1.146 billion for the June quarter and $4.931 billion for all of 2000 remain reasonable. Given tight manufacturing capacity it is hard to see much upside to that number unless the Athlon mix surprises us on the upside, which we don't think can happen until later in the year. However, a successful ramp of Thunderbird and Spitfire could have a more immediate impact on gross margins. Given the increased aggressiveness of the planned ramp, we've moved our gross margin estimate for the whole year from 44.3% to 44.8% - the current quarter estimate has gone from 43.5% to 44%. We want to emphasize that these numbers are still conservative - a successful ramp of both products could take gross margin for the year to better than 46%. AMD finds itself in the unique situation of being able to ramp production of a high-performance PC microprocessor with essentially no interference with Intel, which is struggling to ramp its own production capacity. We have seen AMD stumble on manufacturing execution before, and given the challenges that AMD faces over the next two quarters we need to monitor AMD's progress closely. However, the other big problem that AMD has always faced in the past - ruinous competition from Intel - is not a problem right now. With that in mind, and given AMD's exciting product lineup and we believe a very inexpensive stock valuation, we recommend Accumulating the stock. Should have posted this over the weekend. Petz