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

To: Road Walker who wrote (53853)	9/5/2001 3:50:44 PM
From: Charles Gryba	Read Replies (1) \| Respond to of 275872

John, Sentiment has been nasty for 10 months now. Personally I set a bunch of limit buy orders for a number of stocks at 25% off their current prices. Some even 50% off since I think the bottom will be nasty when it comes.... Constantine

To: Road Walker who wrote (53853)	9/5/2001 4:04:26 PM
From: AK2004	Respond to of 275872

John, All agreed, below is needham take on it Regards -Albert 08:46am EDT 5-Sep-01 Needham & Co. (Dan K. Scovel 212-705-0322) AMD Low End of the Range: Lowering Estimates, Reiterate Buy Equity Research Morning Note Dan K. Scovel (212) 705-0322 September 5, 2001 dscovel@needhamco.com William J. Sherman (212) 705-0289 wsherman@needhamco.com Advanced Micro Devices (AMD/NYSE) Low-end of the Range: Lowering Estimates, Reiterate Buy Price (9/4/01): $12.95 Shares Outstanding (MM): 314.1 52 Week Range: $38.25 - $12.85 Market Cap. (MM): $4,068 Recommendation/Target: Buy / $25 (was $30) Avg. Daily Volume (000): 5,939 Price/LTM Sales: 1.0x Book Value Per Share: $11.16 12/00A 12/01E 12/02E Was Is Was Is Revenue (MM) $4,644.2 $4,056.4 $4,003.5 $5,041.3 $4,947.6 Growth 63% (14%) 24% Op. Margin 19.1% 4.9% 12.2% EPS: 1Q $0.55* $0.37A $0.37A $0.26 $0.24 EPS: 2Q 0.60 0.05A 0.05A 0.26 0.24 EPS: 3Q 0.64 (0.05) (0.09) 0.31 0.29 EPS: 4Q 0.53*** 0.12 0.10 0.41 0.39 EPS: Year $2.35* $0.48 $0.42 $1.23 $1.16 Growth NMF (82%) 173% P/E Ratio 5.5x 30.8x 11.2x 2000 earnings taxed at 31% would be $1.96 Excludes one-time charges & gains. Diluted EPS was $1.18. *Restated Summary AMD updated its 3Q guidance last week and indicated that sequential quarterly revenues would decline at the low-end of a range between minus 10% to 15% and result in an operating loss. * The company expects microprocessor unit shipments of approximately 7.8 million to meet or exceed last quarter's record quantity-- despite PC market weakness and intense microprocessor competition. * Management continues to expect flash memory revenues to fall by $100 million, or 30%, compared with the prior quarter. * We are lowering our EPS and revenue estimates for 3Q to a loss of ($0.09) on $836 million from a loss of ($0.05) on $870 million, for 2001 to a gain of $0.42 on $4 billion from $0.48 on $4.1 billion, and for 2002 to $1.16 on $4.9 billion from $1.23 on $5 billion. * We are also lowering our 12-month target price to $25 from $30. * We reiterate our Buy recommendation on AMD. Investment Opinion We are lowering our earnings estimates and target price due to intense microprocessor competition in weak PC markets. Nevertheless, we continue to believe AMD is well positioned for market share growth with its highly competitive Athlon microprocessor family offering, regardless of potential near-term financial losses. We believe Intel is capable of denying AMD profitability for the foreseeable future in its quest to maintain market share, but will eventually choose to curtail such a strategy as costs mounts. This is the primary assumption behind our current Buy recommendation on AMD. 3Q Outlook The company announced an expected sequential 3Q quarter revenue decline of 15% and an undefined operating loss. This is at the low-end of the previously guided range for a decline between 10% and 15%. Flash memory sales remain likely to fall by $100 million, or 30%, and microprocessor unit sales are likely to remain near last quarter's record quantity approximating 7.8 million. Earnings Model Changes We are lowering our earnings estimates generally consistent with last week's updated guidance. For 3Q we are modeling: a slight decrease in microprocessor ASPs to $72.50 from our previous estimate of $75 and last quarter's $76.40; a slight decrease in microprocessor unit shipments to 7.8 million from our previous estimate of 8 million and last quarter's 7.7 million; a 100 basis point gross margin decline to 34% from our previous 35% and last quarter's 35.4%; and an unchanged flash memory sales decline of 35% or $111 million. This results in a revenue decline of 15.2% and a loss of ($0.09) per share, down from our previous decline of 11.7% and loss of ($0.05). Our 4Q and 2002 microprocessor ASP and unit growth, as well as non-microprocessor revenue growth, remain unchanged. Lower units and revenues are due to the newly lowered 3Q base. We consider potential growth in future quarters due to: peak PC market seasonality; potential PC market demand increases associated with the introduction of Windows XP; the ramping of volume production of higher price and margin microprocessors for notebook applications; increased availability and lower priced DDR DRAMs; increased availability of infrastructure partner chipsets and motherboards; peak consumer electronics market seasonality for flash memory product applications; the introduction of new data storage flash memory devices; and the introduction of new cell phone handset platforms by customers with increased flash memory requirements. Betting the Price War Will End We are lowering our 12-month target price to $25 from $30 consistent with our lower earnings estimates and 20x estimated 2002 earnings. While the flash memory and PC microprocessor market environments remain challenging near-term, we remain bullish on the company's prospects for longer-term revenue and earnings growth from its potential to gain microprocessor market share with its highly competitive Athlon offering. Our investment recommendation and earnings model are predicated on the critical assumption that competitor Intel (INTC, $26.85, Hold) will stop the current microprocessor price war within the next couple of months. We believe Intel is financially capable of denying AMD profitability for the foreseeable future in its quest to maintain market share, but will not be able to stomach the financial adversity required to do so. We also consider it unlikely that Intel could financially destroy AMD during such time, given AMD's market momentum, PC OEM customer desire for an effective counter-balance to Intel's market dominance, and the political threat of anti-trust action. We consider this issue the primary risk-reward factor for investors considering AMD.