SCD :Computex Day 1
2006-06-06 10:06 (New York)
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Moors & Cabot
Capital Markets Industry UpdateINDUSTRY UPDATE
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SEMICONDUCTOR DEVICES June 6, 2006
Hans Mosesmann, SVP
203.504.1602
hmosesmann@moorscabot.com
Kevin Cassidy
415.288.2247
kcassidy@moorscabot.com
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Computex Day 1
We review an upbeat Day 1 of Computex based on discussions with our sources at
the show.
The buzz at this year's Computex in Taiwan is generally upbeat about 2H06 PC
demand dynamics (but no better than last year). Based on our discussion with
our sources at the show today:
* Dual core, dual core. Participants at the show are optimistic about AMD's
transition to the AM2 (DDR2 enabled) desktop processors this summer with
mixed datapoints emerging about the server version of the socket known as
Socket F (perhaps being delayed within Q306).
* Intel's desktop Core 2 Duo (Conroe) is not expected until late July as we
expected and commentary from participants is muted.
* Participants acknowledged that there is a chipset glut in the channel,
however mixed on the implications on the market. The chipset shortage appears
to be in the value segments of the market and also driven by the RoHS
(restriction of the use of hazardous substances) packaging dynamic.
* Anecdotally, Nvidia appears to be emerging as the preferred chipset supplier
in Taiwan over ATI, Via, and SiS. Additionally, participants believe that
Intel will continue to require ATI chipsets in 2H06 in the low-end of the
market; however it appears that on the discrete GPU side of the business ATI
continues to struggle.
* Interestingly, both ATI and Nvidia have stepped up the efforts in bundling
chipsets with their discrete GPU solutions, which we believe may well alter
longer term trends in the graphics industry by locking Taiwanese players out
of incremental business.
* Various motherboard players indicated AMD continues to suffer from shortages
of lower end Sempron CPUs, which is not surprising giving the shift to dual
core the company is experiencing.
* AMD's 4x4 gamer solution appears still under development with product likely
3 months plus away.
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Please see the important disclosures at the end of this report.
Valuation
AMD Valuation. Our 12-month price target of $10 for AMD shares is based on a
20x multiple to our 2007 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.
ATI Valuation. Our price target to $13.00 based on a historic multiple range of
20x " 22x of our calendar 2006 EPS of $0.60. Reiterate our Hold rating.
Intel Valuation. Our 12-month price target of $30 for INTC share is based on a
20x - 22x multiple range of our 2007 GAAP EPS estimate of $1.35. We now believe
a 20x " 22x range rather than 20x is reasonable given margin trends (upward
after 2Q06), market share gain dynamics, and the disruptive Vista 2007 launch
(for the PC industry), which point to a dynamic that we believe comes around
rarely in the semiconductor business.
NVIDIA Valuation. We have been using a 25x P/E multiple to value NVDA, we
believe that a conservative 10% premium from the historic 22x-23x as a
valuation metric is quite reasonable in our opinion given the company's new
model. Therefore, our 12 month price target for NVDA of $33.50 is based on 25x
our fiscal January 2008 GAAP EPS of $1.33; our FY2008 pro-forma EPS estimate is
$1.50. We are using the more conservative GAAP estimates for valuations going
forward.
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.
ATI Risk. Product delays, competition, end-market weakness, and lower-than-
expected overall semiconductor growth are risks that could negatively impact
results. Specific to ATI, delays in executing the launch of the 9600 and 9200
processors could significantly impair the company's ability to protect or gain
market share in the mainstream. Battle in the high end is also a risk, as the
company competes head-to-head with NVIDIA.
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.
Nvidia Risk. Risks for NVIDIA include execution in maintaining a 6-month new
product cycle in the high-end while diversifying in the mainstream and value-
end of the market, competition from ATI both in the high-end and the mainstream
market as the company rolls down its high-end technology at lower price points.
IMPORTANT DISCLOSURES
Analyst Certification
The research analyst(s) responsible for the preparation of this research report
certifies that the opinion(s) expressed herein accurately reflect his or her
personal view about the subject companies and securities. Their compensation is
based upon various factors, including quality of research, investor client
feedback, stock picking, competitive factors, firm revenues, and investment
banking revenues.
Companies mentioned in this report:
ATI Technologies (ATYT; HOLD; $15.98)
Advanced Micro Devices (AMD; SELL; $29.06)
Intel Corporation (INTC; BUY; $17.98)
NVIDIA (NVDA; BUY; $22.83)
The basis for recommendations and price targets, investment risks, historical
price charts and other important disclosures for each subject company that
includes a recommendation can be found at mac.bluematrix.com
bluematrix/Disclosure or through your Moors & Cabot sales representative.
Rating definitions and allocations
BUY: Moors & Cabot expects capital appreciation of 10% or more, including
dividends, over the next 12-18 months.
HOLD: Moors & Cabot expects the stock price to remain within +/- 10% over the
next 12-18 months.
SELL: Moors & Cabot expects capital depreciation of 10% or more, including
dividends, over the next 12-18 months.
NOT RATED: Stock does not have an investment rating by Moors & Cabot.
% of coverage companies for which compensation has been received for products
or services other than Investment Banking services in the last 12 months:
BUY: 4.3%
HOLD: 0%
SELL: 0%
The information contained herein, including any expression of opinion, has been
obtained from, or is based upon, sources believed by us to be reliable, but is
not guaranteed as to accuracy or completeness. This is not intended to be an
offer to buy or sell or a solicitation of an offer to buy or sell, the
securities or commodities, if any, referred to herein. Our firm and/or its
officers and employees (excluding our analysts, who are addressed in the above
disclosures) may have positions in one or more of the securities mentioned
herein. The firm or one of its affiliates does and seeks to do business with
companies mentioned in this report. As a result, investors should be aware that
the firm may have a conflict of interest that could affect the objectivity of
this report.
Moors & Cabot in no way guarantees the accuracy or completeness of such
information. This report has been prepared for informational purposes only and
was issued by Moors & Cabot Capital Markets for distribution to our market
professional and institutional investor customers. Recipients who are not
market professional or institutional investor customers should seek the advice
of their financial advisor prior to making any investment decisions based on
its contents. Nothing in this report constitutes investment, legal, accounting
or tax advice or a representation that any investment or strategy is suitable
or appropriate to your individual circumstances, nor does this constitute a
personal recommendation to you. Opinions expressed are subject to change
without notice and past performance is no guarantee of future results.
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