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Politics : Formerly About Advanced Micro Devices -- Ignore unavailable to you. Want to Upgrade?

To: Elmer who wrote (45916)	1/14/1999 10:22:00 AM
From: kash johal	Read Replies (3) \| Respond to of 1570742

Elmer, Well I just threw more money at it at 24 1/4. Hopefully it will get more rational pricing in a few days. Regards, Kash

To: Elmer who wrote (45916)	1/14/1999 1:04:00 PM
From: Xpiderman	Read Replies (1) \| Respond to of 1570742

AMD investment view from pchang_99 ACE - A response to your analysis by: pchang_99 The points you have listed are all reasonable. I myself see a lot of upside potential in AMD. However, you must also agree with me that AMD is still a risky and volatile stock to hold. Here are some points that may prevent AMD from reaching $60: 1) AMD's roadmap certainly does look good for 99. However, Intel also has an equally agressive roadmap. You have already seen that Intel is determined to win back market share in these first two weeks of January. They pulled in the release of their Celeron 400 by a quarter, cut prices across the line, introduced larger caches on its Xeon processors, and introduced a mobile Pentium MMX mobile processor all in two weeks. Apart from the K7 processor, Intel has something that will match what AMD has to offer blow for blow. Sure the K6-3 may beat both the Pentium II and III on benchmarks but everyone should remember that right after the Pentium III comes out, an improved version with cache and most likely 133 Mhz bus will come out. It was interesting to note that there has been no update on when the K6-3 will be released. I am therefore to assume that it will not be this quarter. Therefore, this will give AMD at most about 3 months to establish some following before Intel comes out with its own processor with integrated cache. Some may argue that's all AMD needs and that Dell, Gateway, etc. will be obligated to create boxes around it. However, you may recall the same thing happened two years ago with the Pentium II but both of these companies decliend to leave Intel's fold. AMD has a larger market share now but clearly chip performance is not the only thing that these companies look at when designing future boxes. As a quick sidenote, I don't hear anyone mentioning Gateway coming over to AMD anymore. I still hear the Intel chimes at the end of their commercials and noticed that they were one of the first to begin advertising computers built around Intel's Celeron 400. 2) Manufacturing continues to be a problem for AMD. They continue to have poor bin splits. While they may not have been as bad as Ashok Kumar predicted (1% 400 Mhz), they were still insufficient to meet demand. This is continues to be disconcerting for me. As for using Motorola or IBM as foundries, I still see both of those as being rather impractical. AMD already has horridly low margins on its chips. Having others make them will only cut further into those razor thin margins. Remember, Motorola and IBM must have some financial reason for doing it. Also, the processes that both are using are quickly diverging from Fab 25. Both are largely using copper interconnects. Furthermore, Motorla and IBM have different copper technologies. In any case, it will take a significant amount of time between when the foundry order is given and when chips begin coming off the other end in decent yields. 3) People have been focussing a lot on yields particularly on this message board but another problem AMD may be having is POOR THROUGHPUT TIME. When a typical semiconductor manufacturing process is first developed, throughput time (ie. time from when wafers are started to when they leave the fab to be packaged), throughput time is usually about 8 weeks. As a process matures, you are usually able to cut that down by abouthalf through various manufacturing improvements. It seems that AMD is also suffering from poor throughput times as well since they seem to have problems adjusting to demand within a quarter. Perhaps they should put a little more emphasis on improving this and a little less on yields. Note that this would also help with yield and cost cutting experiments as well since you can now get the results of your experiments faster. 4) The notebook market which AMD is trying to use as a foothold to get into the business market will be the next battleground between Intel and AMD. There will certainly be a lot of competition here. Note that since the notebook processors are tightly grouped in speed from about 200 to 300 MHZ, the consumer will be presented with lots of choices and it seems that Intel will be the winner regardless of what they're looking for. e.g. if a consumer is looking for a 300 Mhz processor, Intel has both a Pentium MMX 300 (just released with little fanfare) and a Pentium II 300. As far as I know, AMD only has a K6 300 to compete. If the consumer wants the lowest price, the Pentium MMX is the right choice. If he wants the best performance, he should take the Pentium II. This will be further complicated in the next couple of months when Intel releases the mobile Celerons with on chip cache. Not good for AMD even with the K6-2 in mobile form. 5) Finally, the transition to 0.18 still worries me. People have argued that AMD should have no problem since they've mastered 0.25. This quarter shows that the problems are STILL there. Maybe not as glaring but still present. For whatever reason, AMD was once again unable to meet the demand for its chips. It is in the business of manufacturing chips and for whatever reason, whether it be poor yields, poor throughput, poor bin splits, poor ramping, or poor chip pricing, they DID NOT meet the demand from the OEM's. So, ACE, those are some other points to consider from a devil's advocate point of view. Hope that was intelligent enough for you. I won't even begin to play around with numbers to make an estimate for AMD's price. You can see what small mistakes in assumptions can do to earnings estimates and as AMD demonstated once again today, even the "safest assumptions" about ASP's are not foolproof. I believe that if the manufacturing and products are there, the profits and share price will follow. Incidentally, I will say that I don't think AMD deserves a PE ratio much higher than 20-25 given its past history of delivering results despite the somewhat promising outlook.