AMD strictly moderated (AMD)

[KeithDust2000]

Prudential: Raises price target to $55

thx HoDad99 @ yahoo

VALUATION: We are increasing our price target on AMD to $55 from $40. Our $55 price target assumes a 25x multiple on our 2007 GAAP EPS estimate. A 25x multiple is consistent with multiples high growth stocks have
carried.

INVESTMENT OPINION: 01/19/06 at $38.14

We believe the company is firing on all cylinders. Given its strong product cycles, its continued manufacturing
execution, aggressive capacity ramp, and pending carve out of its flash business, we think AMD has the
potential to post more upside surprises and remains one of our top picks. AMD believes commercial PC
platforms represents its single biggest growth opportunity, and as a result, has made gaining share in this
market its #1 priority. We estimate AMD's share to be ~10% in this segment, far less than its consumer segment
share of ~35%, and its total market share of ~20%. Management has set a goal to capture over 15% share in
this market and illustrated its recent success by highlighting its 88% penetration rate of the Fortune 100, up from
55% just 2 quarters ago.

• AMD is in the early stages of a corporate ramp at HPQ with its Turion MPU and is seeing success with other
leading OEMs such as Lenovo, Acer, and Fujitsu. Additionally, we would not be surprised to see AMD win
designs at Lenovo's recently acquired IBM line given the poor financial performance of that business unit and
AMD's strong relationship with Lenovo. Our model assumes AMD gains another 200 bps of total MPU share by
end of '06, which could be conservative given the company's capacity ramp and aggressive push in the
commercial space.

• Opteron momentum continues as AMD has taken about 900 bps of share in the server MPU market over the
past three quarters. AMD said that it expects to double its available server platforms in '06 and that its goal is for
greater than 20% share. The company noted that its market share estimates do not account for design wins at
Dell, although it did say that it believes Dell is being impacted because it doesn't sell Opteron. We are modeling
AMD to gain another 800 bps by end of '06, which equates to a 24% market share.

• AMD posted another blowout quarter. Revenue growth (ex. Spansion) of 34% exceeded our expectations for
15% growth, while EPS beat the Street by $0.19. Central processor units (CPU) revenue growth was 35% QoQ,
which compares favorably to Intel's CPU revenue growth of 1%. We estimate that AMD took 340 bps of unit
share from INTC in the overall CPU market. Over the past two quarters, we estimate that AMD has taken about
600 bps of share overall from Intel. Over the last two quarters, we estimate that AMD has taken almost 600 bps
of unit share from the biggest and most powerful semiconductor company in the world. AMD's progress is most
pronounced in the server market, where we estimate that it gained 800 bps of share.

• The share gains that we estimated are almost unbelievable, in our view. We think that a lot of investors either
don't believe it, or are in denial about AMD's success. Therein lies the opportunity. Despite the run in the stock,we get the sense that most investors don't want to be involved in the stock. Indeed, most investors are not even interested in hearing our pitch on the stock. Investors just assume that Intel will "crush AMD on pricing". If we
are close in our analysis that AMD has a cost advantage, that may not be a legitimate competitive reaction.

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