Maverick
here is the other one
Regards
-Albert
08:28am EDT 12-Oct-00 Gerard Klauer Mattison & Co. (Geraghty, J. 212-885-4003)
AMD--3Q EPS Better Than Expected; Lowering 4Q00 Ests. Slightly--BUY
Advanced Micro Devices (AMD)--3Q EPS Better Than Expected; Lowering 4Q00 Ests.
Slightly--BUY
John M. Geraghty, CFA Julie C. Baker
(212) 885-4003 (212) 885-4016
jgeraghty@gkm.com jbaker@gkm.com
October 12, 2000
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Price: 21.81 52-Wk Rng:48.50-8.19 Price Target:$60 S&P 500: 1364.59
Shrs Out/Mk Cap: 352.9Mil/$7.7Bil 5 YR Est Growth Rate: 17%
Div/Yield: N/A L-T Debt/Cap: 39%
Avg Daily Vol: 6.9 Mil
____________________________________________________________________________
FY Ends -- EPS --
Dec. Curr Prior P/E
99A $(1.10) N.M.
00E 2.59 8.4x
01E 2.77 7.9
____________________________________________________________________________
Qtrly -- 1Q -- -- 2Q -- -- 3Q -- -- 4Q --
EPS Curr Prior Curr Prior Curr Prior Curr Prior
99A $(0.41) $(0.54) $(0.36) $0.23
00E 0.58A 0.61A 0.64A 0.61E 0.75 0.79
01E 0.67 0.68 0.68 0.74
____________________________________________________________________________
o AMD reported 3Q EPS of $0.64, $0.02 above consensus of $0.62 and $0.03
better than our $0.61 forecast. Revenue of $1.21 billion was slightly
lower than our forecast of $1.23 billion, due to lower-than expected ASPs.
The higher-than-expected EPS results were the result of lower R&D and SG&A
expenses. GPM in the third quarter was 46.7%, down one percentage point
sequentially. AMD sold about 3.6 million Athlon units at an ASP of about
$140, and about 3.3 million K6 units at an ASP of about $40. The overall ASP
was about $92 in 3Q, essentially flat versus $93 in 2Q. We expect that the
ASP will remain flat during 4Q, as well. AMD's target ASP for 2001 continues
to be $100, as it ramps the Athlon processor and hopefully enjoys a richer
product mix. We reiterate our BUY rating.
o Athlon ramp is accelerating. In the third quarter, the company shipped
3.6 million units with an estimated ASP of about $140. We expect AMD to
double its Athlon shipments in 4Q to 7.2 million. For 2000, we are
forecasting about $4.9 billion in total revenues, reflecting about 13.8
million Athlon (K7) units with an ASP of about $145 and 14.6 million K6 units
at roughly a $45 ASP. In total, we are expecting sales of 28.4 million total
units in 2000.
o AMD's two new Athlon parts demonstrated impressive sales growth during
the quarter. The Duron processor targets the value segment of the market, and
the Thunderbird targets the high-performance end. The Thunderbird part will
be made in Dresden as that facility ramps from its current rate of about 2.5K
units/week. The Duron part is being made at Fab 25 in Austin, where Athlon
production is ramping. Both parts are socket (versus slot) based and have
greater L2 (Level 2) on-chip cache than comparable Intel (INTC) products,
according to AMD management.
The Dresden facility is key to AMD's ambitious production targets,
especially in 2001. The facility is on schedule and should reach 50% of
capacity (in wafer starts) by the end of this year. 1.5 million Durons
were shipped in 3Q. There is a problem with availability of UMA graphic
chipsets, supplied by Via Technology. These will not be available for the
low-end Duron PC market ($399 - $599) until December. Consequently, AMD
will concentrate on higher ASPs but will be slightly limited in units in
4Q.
AMD is also targeting a 30% market share in microprocessors by the end of
2001. To do this, AMD needs to continue targeting the commercial market,
where AMD has recently seen market share gains. We believe chipset
availability will certainly help in the workstation and server markets
this year. Finally, there should be portable Athlon products introduced
in 4Q of this year, and a 64-bit processor, code-named Sledgehammer, in
2001.
o AMD's flash memory business continues to be strong. Revenue was up 17%
sequentially in the flash memory business. Flash memory is "on allocation"
and essentially sold out for the rest of 2000. We expect prices to continue
to move up in this market. Bit growth was up 80% sequentially, and AMD is on
target to surpass its goal of 70% bit growth this year and believes a 100%
CAGR is achievable over the next 2-3 years. Its average density is now 9.5
Mb versus 8.8 Mb last quarter. In 4Q, we expect the flash business to grow
about 10% sequentially since capacity is currently tight. AMD plans with its
partner, Fujitsu, to build a new flash plant in Japan.
AMD sees no real decline in flash demand throughout 2001. There has been
no short-term weakness in this segment for AMD. In the third quarter, AMD
pulled in some revenue scheduled for the fourth quarter. Consequently,
the sales growth in 4Q should be slightly limited.
o Cash improved in the quarter. The company's cash position improved by
$153 million to $1.23 billion. Capital spending for 2000 should be about
$850 million, with 50% targeted for Dresden. Depreciation should total $600
million this year. AMD is no longer looking for a partner for its Dresden
manufacturing facility since start-up costs are mostly behind it. The flash
business is coining money in its joint venture with Fujitsu. AMD could
allocate more capacity at Fab-25 in Austin, TX, to support this booming
business.
AMD retired $400 million in senior debt during the third quarter and has
the option of converting $500 million of convertible debt into stock next
year. The only remaining debt would be that guaranteed by the German
government at favorable terms. AMD could be debt free in 2001, excluding
the debt on the Dresden plant.
o Promising 2001 outlook. AMD is scheduled to introduce a variety of
higher speed, larger cache products that have both higher clock and front-
side-bus rates, designed to work with either PC 133 or DDR. These AMD
launches, however, will directly coincide with and compete against Intel's
launch of its Willamette, a 32-bit next-generation processor. In 4Q00 AMD is
introducing its Mustang microprocessor, which is targeted to the workstation
and server markets. The Mustang is AMD's introduction into the high-end
server market.
o Maintaining 2000 and 2001 EPS estimates and price target of $60;
adjusting 4Q00 EPS estimate. We are maintaining our 2000 and 2001 EPS
estimates of $2.59 and $2.77, respectively. We are lowering 4Q00 EPS $0.04 to
$0.75 from $0.79, because of flash capacity constraints and a slightly lower
ASP. One noteworthy factor is AMD's tax rate, which should be 17% in 2000
and 31% in 2001. We believe the production ramp at the AMD facility in
Dresden, Germany will generally be smooth and that the semiconductor business
overall will remain strong in 2001. Along with other semiconductor issues,
AMD stock has been weak lately, but we continue to believe this is mostly a
seasonal pattern, as investors usually find reasons for concern in the
technology segment at this time of year. We still expect improved 4Q
performance in the semiconductor segment, based on our belief in a good
Christmas selling season.
INVESTMENT CONCLUSION
Reiterate BUY rating. We continue to believe AMD's flash sales for 2000
could reach $1.5 billion (31% of total sales). In addition, the outlook for
AMD's microprocessor business appears strong. AMD has proven its 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 continue to surprise investors
with better EPS results than we are estimating. We believe that AMD's
business is strong and that the company continues to improve. Fundamentally,
we do not see anything wrong at AMD and believe the valuation has improved
dramatically due to the recent softness in the stock price. Our 12-month
price target is $60.
Companies mentioned (closing price as of October 11, 2000):
Intel Corp+ (INTC - $35.38 - BUY) |
