Advanced Micro Devices Inc (AMD)

[JackDye]

After digesting the x86 server market numbers this morning, it seems pretty reasonable Opteron volumes were in the 30K range for Q1. This is actually quite encouraging.

If in the current fab, it truly is a matter of "turning the dial" to get more Opteron volume produced, the variable cost of producing these chips within the current overall volume profile becomes negligible. As the tier-1 OEMs ramp and the channel programs get up to speed, it is not unreasonable to expect Opteron to garner the ~15% of market share that AMD has historically held. Given they actually have superior price/performance in the server space, this is probably a floor. It will take a few quarters to get there, but look at what happens when they do.

15% x 1.3M units/qtr = 195K Opterons per quarter. It will actually be higher with overall market growth.

At an AUP of $600 (on the low side), this is an incremental $100M in earnings per quarter.

On top of this is the continued client AMD64 adoption, which helps AUPs as well. Flash savings (needs to be realized). Move to 90nm which will actually produce higher theoretical capacity and more incremental revenue. Etc.

It gets you a pretty high confidence $.35 - $.40 eps that is repeatable. The server numbers are based upon Q1 and should be repeatable in all quarters.

In this case, it is the AMD64 question? How many can they produce, because the demand is going to be there real soon.