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

To: Kevin K. Spurway who wrote (46168)	1/15/1999 10:07:00 AM
From: Scumbria	Read Replies (2) \| Respond to of 1573433

Kevin, Needham & Co. upgrade Apparently there was one analyst in the CC audience, who actually had enough technical expertise to understand what was being said. Scumbria

To: Kevin K. Spurway who wrote (46168)	1/15/1999 11:32:00 AM
From: Paul Engel	Read Replies (1) \| Respond to of 1573433

Kevin - Re: "Meanwhile, it looks like the AMD selling panic has ended, As I read this, the selling panic continues. AMD is now selling for $21 3/8 ! Paul

To: Kevin K. Spurway who wrote (46168)	1/15/1999 10:22:00 PM
From: Foad	Read Replies (4) \| Respond to of 1573433

SmartMoney.com Article smartmoney.com January 15, 1999 AMD's Mounting Credibility Gap By Tiernan Ray NOTHING is more dangerous than an analyst spurned. Advanced Micro Devices (AMD) is finding that out in spades this week. Several of Wall Street's finest were caught by surprise when AMD's earnings fell way below estimates because of last quarter's continuing price declines and production problems. It didn't take them long to lash back at the troubled chipmaker with a vengeance. "I think AMD management is sorely testing its credibility at this point," says Piper Jaffray's Ashok Kumar. AMD, he gripes, has not shown that it can consistently produce enough of the right kinds of chips in high enough volumes to compete with Intel (INTC). An engineering problem was at fault this last quarter, when production of AMD's high-speed 400 MHz K6 chips fell. As sales of microprocessor came in at a less-than-expected $488 million, earnings tumbled to 15 cents a share, well below the 19 cents analysts expected. "It's not just about execution," says Kumar, whose 21 cent-a-share estimate was among the highest out there. "It's about whether any PC manufacturers are going to stick their necks out and take [AMD] chips for their most important systems when the company promises parts and then can't deliver, quarter after quarter." Kumar says he now has very little confidence in the company's ability to follow the product road map it has outlined for the K6-3, let alone the K7, AMD's next-generation chip. AMD, not surprisingly, is downplaying the scope of the problem. A spokesperson admitted that the faulty chips not only failed the 400 MHz standard but that they also failed to meet the next-highest grade, 350 MHz. As a result, they ended up being only 300 MHz parts, which are practically worthless. Nevertheless, the spokesperson said, AMD is happy with the 5.5 million chips it did sell during the quarter and hopes to raise average selling prices going forward by producing more chips at speeds of 400 MHz and higher. AMD has been on a treadmill ever since it made the fateful decision about two years ago to compete head-to-head with Intel. By taking on the chip giant, AMD committed itself to keeping its chip performance slightly ahead of Intel's, but at a lower price -- on the order of 75% of Intel's price or lower. Every time there is a slip-up, like in the latest quarter, it delays the production of new chips. And that leaves AMD with another missed opportunity to beat its rival to the punch. AMD has been successful in competing against Intel in the market for microprocessors for computers costing under $1,000. But its financial future is staked on winning accounts for more expensive PCs in the $1,500-and-up range. "They did a good job of establishing K6 as a brand in the low-priced consumer space," says Greg Mischou, an Intel analyst for Warburg Dillon Reade. "The challenge for AMD now is to get their more expensive chips into higher product lines, where Intel's Pentium II is. And there they really have to sell it to computer makers." Mischou agrees that the quarter's disappointment raises questions about AMD's ability to succeed in this strategy. But not everyone is disappointed. David Wu of ABN Amro thinks all the hand wringing is a bit much. Wu says that because Compaq Computer (CPQ) and other manufacturers will want to play Intel and AMD off each other to keep prices low, they'll be willing to cut AMD some slack. If it's late with the K6, they can just get more chips from Intel. Merrill Lynch analyst Tom Kurlak, who upgraded his outlook on AMD in December from Neutral to Accumulate, agrees. "We still recommend the stock because customers really want their products in a bad way," he says. Kurlak was expecting earnings of 17 cents a share and blames his peers for having expectations that were too high for AMD's average selling prices. "The only thing the company did wrong was to not manage those expectations better." Of course, whether AMD continues to have credibility problems in 1999 will ultimately depend on its performance. Until the K7 chip is rolled out later this year, it must make do with its existing K6 line and the upcoming K6-3. Some say last quarter's problem was not a matter of poor manufacturing, but rather a shortcoming with the design of the existing K6 line. "They've been attacking the symptoms of the problem," says Piper's Kumar, "But the issue here is the underlying design of the circuitry." ABN Amro's Wu concedes AMD may not yet be a match for Intel in churning out chips. "As you go each clock speed higher, you have to tweak your design and your manufacturing," he says. "And except for Intel, which turns these things out like clockwork, that ain't easy to do."