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Technology Stocks : Advanced Micro Devices - Moderated (AMD) -- Ignore unavailable to you. Want to Upgrade?

To: combjelly who wrote (22462)	12/14/2000 8:43:41 AM
From: dhellman	Respond to of 275872

Osha:If execution holds, this is interesting -ML Reason for Report: Company Update • We hosted AMD’s new chief financial officer Bob Rivet for a day of meetings earlier this week. Bob brings 24 years of experience at Motorola to his new post at AMD. • Despite the fact that AMD is being hurt by the slowdown in the PC market, we think that the company’s positioning in the low end of the PC market is compelling. • We reiterate our intermediate-term Accumulate and long-term Buy ratings – our 12-18 month price objective is $50. Fundamental Highlights: • AMD’s product lineup continues to compare well to Intel’s – we believe that the AMD Duron should be able to gain market share from Intel’s Celeron in the first half of 2001. • The biggest danger that AMD management faces in the coming year is overextending. We’d like to see the company focus more on beating Intel in the low end of the PC market, and less on engaging Intel in the corporate desktop and server markets. We spent Tuesday (12 Dec.) with AMD’s new Chief Financial Officer, Bob Rivet. Rivet joined AMD about three months ago, after leaving his position as director of finance for Motorola’s semiconductor division. Bob spent 24 years at Motorola before joining AMD. Along with AMD’s President & COO, Hector Ruiz, Bob is working to transition leadership at AMD and to build on the company’s recent success in ramping K7. Opportunities to seize in 1H01 Visibility into the PC market is still limited, and we believe that the slowdown, particularly in the North American consumer market, will continue through the first quarter. The company admits that it will see higher inventory levels at the end of the quarter, but it attributes some of the build to Duron product held back because of the late introduction of an advanced chipset from Via. In spite of uncertainty in the end markets, we believe that AMD’s positioning against Intel in the first half of next year is excellent. First, we expect the problems associated with the Duron and the delayed UMA chipset from VIA to disappear; our checks with VIA assure us that KM133 product will be shipping by the first quarter. The KM133 will enable AMD to meet strong market demand for Durons – we think that the KM133/Duron combination stacks up quite effectively against Celeron and the Intel 815e chipset. Intel could of course choose to price PIII more aggressively, but given the margin pressure that Intel already faces we think it’s unlikely that Intel will really go after the Duron business during the first half. That leaves a real opportunity for AMD to expand market share in the lower end of the business against the demonstrably inferior Celeron. One might expect more limited sales of Duron this quarter to drive higher average selling prices, given the fact that the higher-end Thunderbird is still selling. However, our talks with AMD indicated that the company is doing its best to move its remaining K6 products during the fourth quarter. The higher K6 volume should be sufficient to bring ASPs for the fourth quarter down sequentially – our model shows $86, down from $91 in Q3. Looking into the first half of 2001, though, the potential to take ASPs north of $100 exists. Even with Duron at a higher percentage of K7 sales than AMD management would like, the end of the K6 will help a lot. Additional product introductions in the first half of 2001 will help as well. We expect to see high-end desktop and mobile Palaminos in the first quarter and low-end Morgan counterparts a quarter later. With these product lines in place, we believe that AMD will be offering a compelling and complete set of offerings for PC vendors in the value space. Flawless execution is essential for AMD to take full advantage of the opportunity to seize market share, but AMD deserves credit for avoiding major execution slipups in 2000. Pitfalls to avoid Assuming that AMD does follow through with its product roadmap, we believe that the company is well positioned to see strong unit shipment growth from its newer lines in the first half of the year. However, we cannot overlook some big challenges AMD still faces in the commercial market. The Palamino will be the first product aimed at high-end desktops, low-end servers and workstations, which are completely new territory for the company. We think that AMD’s cancellation of its Mustang product, which was geared for workstations and servers alone, was driven by a lack of customer interest. We have even stronger reservations about the company’s plans to launch the Hammer family in late 2001, which is a 64-bit technology aimed at the server market. We believe that the resources needed to launch this family could take away from the necessary focus AMD should invest in its desktop and mobile offerings. We would be happy to see AMD focus more on the substantial opportunities already at hand, and set its sights a little lower. Flash healthy, for now AMD’s flash should business, which runs through the FASL JV with Fujitsu, will continue to show high single digit sequential growth in the fourth quarter. The company remains particularly positive about its flash business, recent spot price concerns notwithstanding, and insists that it has not seen visibility deteriorate. A recent design win at Nokia is encouraging news, although the fact that AMD’s flash business is only 30% to 40% exposed to cellular is probably good news right now. We respect the company’s efforts to maintain a reasonable pricing environment and solid visibility with its large customers, and investors looking for the business to miss dramatically in the fourth or first quarters are probably mistaken. Given the large amount of capacity being added in the business, though, we expect to see lead times begin to come in sharply by the second quarter of 2001. Maintaining rating AMD is at an interesting point in its history – the problems in the PC business notwithstanding, the company is winding up one of the best years in its history from both an execution and financial standpoint. It faces a competitor with serious margin problems and a stale product lineup in the first half of 2001. CEO Jerry Sanders seems committed to handing over leadership to Hector Ruiz and his team, and we believe that Ruiz and Bob Rivet are capable of bringing a higher level of execution consistency to AMD than the company has seen in the past. The stock price, meanwhile, has declined to levels that seem to anticipate the kind of product and earnings meltdown that AMD has seen too often in the past. If AMD is just able to execute consistently during the next two quarters, it would prove investors wrong. On that basis we are maintaining our intermediate-term Accumulate and long-term Buy ratings. The real challenge for management will be to resist the temptation to overextend the company. AMD is on the verge of soundly beating Intel in the rapidly growing low end of the PC market, but that triumph could be squandered if the company insists on engaging Intel in the corporate desktop and server markets. Intel has both the resources and the will to defend those market spaces successfully against AMD. Focus and realism are going to be vital at AMD during the coming year. 14 December 2000 Joseph Osha Director d

To: combjelly who wrote (22462)	12/14/2000 10:17:54 AM
From: fyodor_	Read Replies (2) \| Respond to of 275872

combjelly: Considering that the core was originally supposed to be only some 10% larger than a pony core, 100mm^2, more or less, means a 1 meg. L2 cache, assuming a similar cache to the current Athlon. Since rumor has it that it will use the EV6 bus, I would rather see a much smaller cache and it relying on an eCache chipset for maximum performance. I would rather see the smaller cache and an integrated memory controller, resulting in a diesize of around 100mm2 ;). -fyo