guess who is back? I like how mosesman call conroe as existing platform while whatever AMD shows is not existing. In his mind conroe existed for long time already.....
AMD :AMD's 2006 Technology Analyst Day - A Sense of Being Overw
2006-06-02 08:42 (New York)
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Moors & Cabot
Capital Markets COMPANY UPDATE
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SEMICONDUCTOR DEVICES
Advanced Micro Devices
Hans Mosesmann, SVP (AMD - $31.39 - NYSE)
203.504.1602
hmosesmann@moorscabot.com
June 2, 2006
Kevin Cassidy
415.288.2247 Rating: SELL
kcassidy@moorscabot.com
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AMD's 2006 Technology Analyst Day - A Sense of Being Overwhelmed
AMD's Technology Analyst Day was rather lacking in terms of specifics. In this
note we summarize the presentations and add some commentary. Net/net a bland
analyst day and we sense that AMD was flat-footed in terms of Intel's Core and
the ramifications across the entire product line.
Advanced Micro Devices
Symbol: AMD
Price: $31.39
12-Month Price Target: $10.00
52 Week Range: $42.70 - $16.30
Shares O/S: (mm) 495.0
Market Cap: ($mm) $15,538
Average Daily Volume: 14,543,653
3-Yr. EPS CAGR: 15.0%
Fiscal Year End: December
EPS (Net)Diluted 2005A 2006E 2007E
Q1 ($0.04)A $0.38A $0.10
Q2 $0.03A $0.26 $0.10
Q3 $0.18A $0.21 $0.14
Q4 $0.21A $0.21 $0.16
Annual $0.38A $1.06 $0.50
P/E 82.6x 29.6x 62.8x
Revenue($M)Basic 2005A 2006E 2007E
Q1 $1,227A $1,332A $1,300
Q2 $1,260A $1,350 $1,300
Q3 $1,523A $1,380 $1,400
Q4 $1,838A $1,400 $1,500
Annual $5,848A $5,462 $5,500
Mkt Cap/Rev 2.7x 2.8x 2.8x
Source: Moors & Cabot and Bloomberg.
WWW.MOORSCABOT.COM
* AMD's Analyst Day yesterday was well attended and focused mostly on the
server area and various "ecosystem/licensing" programs or initiatives.
Overall rather lacking in terms of specifics given that new products are not
expected until mid 2007.
* AMD's Quad-Core for servers by mid-2007 should be a very good chip in high
end server applications, however it appears not to be based on a new micro-
architecture. AMD indicated it would hit 30% server share by the end of
2006, an aggressive but realistic goal for them in our view.
* Interestingly, fairly little time was spent on notebooks (refresh a year
from now), and almost no time on desktops, other than to mention a 4x4
Enthusiasts Platform, which we view more as a technical curiosity.
* We are quite intrigued by AMD's decision to ramp 65nm products in mainstream
desktops first (not high-end) first, unusual in the semi world based on the
beat of Moore's Law. The decision to use a conservative shared 90nm/65nm
transistor design is not allowing AMD to get to the higher speeds, we
suspect. A net negative.
* In a confounding move, AMD chose to compare (theoretically) its Opteron to
Intel's Woodcrest in a 2-way application arguing Intel's system uses 28%
more power than the Opteron system. Our view is that in theoretical
comparisons, both AMD and Intel may choose configurations to suit their
purposes.
* Amazingly, as we highlighted last week in our note (Commenting on the
Elephant in the Room), no attempt was made by management to refute the
multitude real world benchmarks on existing platforms Intel released last
week; which show Woodcrest beating Opteron unambiguously in terms of
performance and performance/watt.
* Reiterate Sell rating.
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Please see the important disclosures at the end of this report.
AMD's Analyst Day yesterday was well attended and focused mostly on the server
area and various "ecosystem/licensing" programs or initiatives. AMD emphasized
their customer centric theme, their progress in process development and a
strategy for opening up the direct connect architecture to encourage 3rd party
innovations. Overall, though, the meeting was rather lacking in terms of
specifics given that new products are not expected until mid 2007.
We were intrigued and confounded in a few areas, in particular the odd decision
to ramp 65nm later this year in mainstream (not high end) desktops, which is
not only unusual but likely indicative of process node challenges. We were also
puzzled by AMD's rationale to theoretically compare its Opteron to Woodcrest
rather than refute the "real world" comparisons Intel released last week. Net/
net a bland analyst day and we sense that AMD was flat-footed in terms of
Intel's Core and the ramifications across the entire product line.
Is AMD overwhelmed? We actually have not considered this angle, but after
yesterday's performance we are not quite sure.
Quad-Core for Servers
Phil Hester, Sr. VP and Chief Technology Officer, gave an overview of server,
desktop, mobile and a new category - Innovative Solutions, all processor design
targets based on customer feedback. AMD believes their modular design approach
will allow the flexibility needed to meet all the design goals.
Based on the presentation, AMD's Quad-Core for servers, due out mid-2007,
should be a very good chip in high end server applications, however it appears
not to be based on a new micro-architecture. Additional shared L3 cache (+2MB)
will be added along with up to four 16-bit HyperTransport 3.0 ports giving more
interconnectability and system scalability. A new power feature, DICE (Dynamic
Independent Core Engagement), gives the ability to dynamically and individually
adjust core frequencies for improved power efficiency. We believe this
processor will allow AMD to maintain its lead in high-end multi-processor
servers.
Notebooks and Desktop
A few very general comments were made on AMD's new notebook plans. Sometime in
2007 AMD expects to introduce a mobile platform, which should include a new
core optimized for power / mobile applications including HyperTransport 3.0
ports in low and ultra-low power categories. The chipsets for this platform
will support HDMI, HD video hardware acceleration, WWAN 802.11n/3G and Hybrid
Disk Drives.
For Desktop applications AMD gave little details except that they will add
larger caches to the next generation core and upgrade to a HyperTransport 3.0
port.
Most of the desktop discussion centered around a new 4x4 Enthusiasts Platform
which allows gamers to link two Dual-Core FX processors on one motherboard,
giving extremely high performance. In our view, this is more of a technical
curiosity than a serious product for the market.
65 nm Process Update
Daryl Ostrander, Sr. VP Logic Technology and Manufacturing, gave an update of
AMD's process technology and manufacturing plans. As was announced earlier this
week, Daryl discussed AMD's fab conversion / expansion plans, which should
boost capacity by up to 4x 2005 levels by 2009 or enough capacity to serve one-
third of the worldwide CPU demand in 2009.
The conversion to 65nm process is on-track for volume production of mainstream
desktop processors beginning in 4Q06. AMD expects the crossover (more than 50%)
of 65nm wafers over 90nm wafers sometime in 1Q07 and to be fully converted by
July 2007. This is a very fast conversion aided by AMD's decision to use a
shared 90nm / 65nm transistor design but perhaps not allowing AMD to get to the
higher speeds.
We are quite intrigued by AMD's decision to ramp 65nm products in mainstream
desktops (not high-end) first. When asked, this was explained as it's a "high
volume" market which does not make sense to us, unless the yields are poor at
the higher speeds. In our view, AMD's high end desktop position is the most
vulnerable entering 2H06 when compared to the upcoming Conroe from Intel; a
decision not to deploy 65nm at the high end by year end is problematic in our
opinion as we believe 90nm processors are simply no match to Intel's Core (new
micro architecture and 65nm).
Opteron vs. Woodcrest Projected Platform Power Consumption compare
Rather than comment on various benchmarks Intel has released based on real
world applications (where Woodcrest has a 13% - 18% edge in power), AMD
preferred to compare Projected (theoretical) Platform Power Consumption using
maximum power specs in the calculations, which we dare say is ripe for debate.
In AMD's example, Opteron trounces Woodcrest by some 28% less power though in
reality we don't believe all system components would run at max power
simultaneously. As an example, the memory subsystem would not be running at max
power when the CPU is running at max power. AMD failed to include the power
used by a PCIe bridge and doubled the content of the Intel system memory (above
average configurations). We are sure that critical observers can also make the
same arguments on configurations of both systems to prove their side of the
argument; our point is that to make the case in the performance/watt
discussion, why not put a real AMD Opteron system vs. a real Intel Woodcrest
system and prove the point. Or at least make the case that last week's
benchmarks from Intel are suspect in some way or fashion. In summary, the real
world comparison of these server systems would not only be intellectually more
powerful in proving a point, it also would limit observers, such as ourselves,
who are starting to get a sense that AMD has been caught flat footed on how to
position its product line to Intel's Core.
Introducing Torrenza, Trinity, and Raiden
Marty Seyer, Sr. VP Commercial Business Segment, introduced three new platform
strategies AMD will be deploying to enhance their influence in the market.
With Torrenza, AMD is opening the Direct Connect Architecture to partners,
allowing new applications to be designed into an AMD based system. AMD believes
new innovative applications such as security, co-processors, HDTV, Physics will
proliferate the AMD platform. We remain somewhat skeptical as to whether
Torrenza will increase AMD's revenues.
The Trinity Platform improves IT Operations with open management partitioning
and improves virtualization security.
The Raiden Platform takes the Trinity Platform a step further by pulling the
end user's client PC in with Server blades (the IT Dept.) and replacing the
user's PC with a thin client. AMD believes the Raiden Platform will reinvent
the Commercial Client business and structure. We tend to agree, but we also
believe there will be much resistance to this change.
Companies mentioned in this report:
Intel Corporation (INTC; $18.04; BUY)
Valuation
AMD Valuation. Our 12-month price target of $10 for AMD shares is based on a
20x multiple to our 2007 GAAP EPS estimate of $0.50. The 20x multiple is an 11%
premium to the company's historical 18x P/E ratio and is actually the same
multiple we are applying to INTC shares, which is justified by our view given
that AMD is a significantly better managed company today, under CEO and
Chairman Hector Ruiz.
Intel Valuation. Our 12-month price target of $30 based on 20x our 2007 GAAP
EPS estimate of $1.50.
Risk
AMD Risk. Risks that would prevent AMD shares from achieving our $10 price
target include better than anticipated success of AMD 64 microprocessor
products, development of new products that would spur demand beyond current
expectations, accelerated transition to more advanced manufacturing
technologies and the company's near-term ability to gain share from Intel while
maintaining stable ASPs.
Intel Risk. Risks that could potentially impact Intel's results include margin
pressure due to underutilization of fabs, competition from AMD's Opteron/
Athlon-64 chips, PC and communications end-market weakness, poor execution of
manufacturing upgrades, and slowdown in semiconductor growth.
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Companies mentioned in this report:
Intel Corporation (INTC; BUY; $18.04)
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