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To: Chung Lee who wrote (263)	12/19/2000 7:55:48 PM
From: Chung Lee	Read Replies (2) \| Respond to of 271

To: Jozef Halada who wrote (22540) From: Lynn Segal Thursday, December 14, 2000 7:28 PM ET Reply # of 23002 MORGAN STANLEY DEAN WITTER Neutra Mark Edelstone/John Cross/Louis Gerhardy (San Francisco) – Dec. 14, 2000 52-Wk Shs Out EPS EPS EPS 5-Yr Est. Price Rng Div Yld (MM) 99A 2000E P/E 2001E P/E Growth $17 $49–13 -- -- 357.0 $(1.05) $2.35 7.0 $2.00 8.3 15% Target Price: NA Market Cap: $5.9B Valuation We believe AMD has the capability to complete its product transition in 2001 and increase its K7 MPU production successfully in the next several quarters. In addition, the company should be able to scale up K7’s performance in successive product rollouts. However, given that the MPU industry is highly competitive, we believe AMD would need to meet the significant challenges by continuing to execute flawlessly in the upcoming quarters. Consequently, we are maintaining a cautious earnings outlook for 2001 and our Neutral rating on the stock. Key Investment Positives · Athlon should help AMD’s average selling prices. We believe the Athlon MPU has helped AMD to increase blended MPU average selling prices and to increase its addressable market. The Athlon has proven to be a high-performance, highly scalable processor that should be able to compete effectively against the high end of Intel’s processor line. AMD initially supports Athlon MPUs with its own chipset, and several Taiwanese companies provide additional chipset support. · Demand for flash memory remains strong. We believe AMD is continuing to benefit from strong demand in the flash market, which is driven by communication applications. Although we believe cellular handset shipments would experience decelerating growth in 2000 and 2001 compared to 1999, we believe the industry is still consuming significant amounts of flash memory due to the increasing memory content for each phone shipped. For the third quarter, cellular handsets accounted for roughly 35% of AMD’s flash output while data communication, automotive, and industrial applications accounted for majority of the rest. We believe the company is still on track to grow its flash output in megabits by around 100% in 2001. In addition, we believe demand for flash memory will remain solid in 2001. · Potential for higher margins. Due to the high fixed-cost nature of AMD’s business, incremental revenues should enjoy high incremental margins. We believe the key to realizing this potential is solid manufacturing and marketing execution. Thus far, AMD’s execution on Athlon has been excellent. Key Investment Risks · We think expanding the Athlon family and managing product transitions is a key issue. We believe the transition to Athlon and Duron — AMD’s MPUs for the performance and value segments, respectively, which utilize Athlon’s core architecture — is a key factor for AMD’s continuing revenue growth and margin performance. · Cyclicality of semiconductor industry. While the semiconductor industry has enjoyed a historical compound