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To: Paul Dieterich who wrote (44416)	1/8/1998 11:15:00 AM
From: Jim McMannis	Read Replies (1) \| Respond to of 186894

Just what I was waiting for. I can post on SI while I drive. Whoops, there goes the insurance rates, UP! <G> Jim

To: Paul Dieterich who wrote (44416)	1/8/1998 12:20:00 PM
From: Paul Dieterich	Respond to of 186894

Lehman downgrades AMD: ------------------------------------------------------------------------------ STOCK DOWNGRADED TO 3-NEUTRAL ON TIMING AND RISK BASIS; GOOD NEWS ON COMPAQ IS OUT; CONSENSUS PROJECTIONS TOO HIGH; $28 NEW PRICE TARGET (OLD: $35) **************************************************************************** DOWNGRADED TO 3 ON BASIS OF RISK AND TIMING. In 1998 we still see AMD as high risk/high reward. In the end, we expect to see the reward. Still, in the interim, the RISK/reward ratio is far from ideal. In particular, best news is out with the win of Compaq, but consensus projections are unrealistically high. IMPORTANTLY, WE EXPECT A SETBACK AS EPS RELEASE APPROACHES AND CONSENSUS NUMBERS ARE REAPPRAISED DOWN FOR 1998. POSITIVES: K6 VOLUME HAS RECOVERED FROM AUGUST's YIELD SETBACK, AMD HAS CHANCE TO FULLY CONVERT TO 0.25 MICRON PRODUCTION 3 MONTHS AHEAD OF INTC-$73 1/8-2, AND AMD IS WINNING IMPORTANT ACCOUNTS, MOST NOTABLY COMPAQ. Leading edge processors typically enjoy gross margins in excess of 70%. These positives could easily drive AMD to $25-30. THE KEY NEGATIVE IS THE VOLATILITY AND RISK INHERENT IN A SCENARIO WHICH PITS A SMALL COMPANY AGAINST AN INDUSTRY GIANT PLUS AN UNREALISTIC CONSENSUS. The Rule of 21 suggests K6/socket 7 dollar volume for AMD normally would peak 2Q98 (for the 386 and 486, AMD's dollar volume peaked 21 quarter's after INTC's introduction). We expect INTC to continue to push hard to move the market to its Pentium 2/slot 1 and away from the Pentium/socket 7. AMD's market share wins are in lower end systems where pricing is most aggressive. OUR EXPECTATION IS THAT INVESTORS WILL HAVE A CLEAR BITE AT THE REWARD SIDE OF THE RISK/REWARD EQUATION, BUT NOT NOW. We note that our $0.65 1998 EPS projection is well below the $1.15 consensus. ON THE BASIS OF LOWER VALUATIONS THROUGHOUT THE CHIP INDUSTRY, WE NOW VIEW A $28 (OLD: $35) 1 YEAR TARGET AS REASONABLE FOR THIS HIGHLY SPECULATIVE ISSUE BUT SHORT TERM VIEW A NEUTRAL POSITION AS MOST APPROPRIATE.