Goldman Sachs Report thanksto okane from Yahoo
WHY AMD NOW? 2 CATALYSTS COMING
1. Upside to Estimates, Beginning with 2Q04 − We believe there is upside to consensus estimates for AMD for 2004 and 2005, and we expect there may be upward revisions to our estimates throughout the year. We believe the Street is underestimating the significant positive impact that the AMD64 processors will make on AMD’s ASP mix and gross margins. AMD also tends to see an updrift in ASPs as long as Intel is not aggressively cutting prices. We also believe that AMD’s flash business can contribute meaningfully to profits in 2004 due to the low cost architecture of MirrorBit and the aggressive transitions to 110nm and 90nm. The increase in Street estimates could begin with Q204, as we believe AMD’s guidance for a decline in microprocessor sales in 2Q may prove
conservative. The risk to 2Q results is that weaker motherboard data may lead to some
downside in desktop processor units.
2. Better Enterprise Penetration with Key Announcements as Early as Computex (June 1−5) − By beating Intel to the market with 64−bit x86 chips, AMD has been able to penetrate a bit deeper into enterprise customers than it has in the past. It still has not been able to pick up any sales at Dell, but even there Dell has been more impressed with AMD’s execution of late. Intel’s planned launch of Lindenhurst chipsets for severs in Q304 has caused Broadcom (BRCM, IL/N) to look elsewhere for design wins as its products are being displaced by Intel. We expect Broadcom will launch an Opteron chipset early in H204. Other enterprise oriented desktop designs may be announced as early as Computex in Taiwan the first week of June. Given that BRCM’s Serverworks division has a terrific brand name (Dell is a large customer) and credibility in the server space, we expect their launch would have a similar effect for AMD−based server systems as the Nvidia nForce chipset did for improving the overall performance of AMD−based desktop systems. Regardless, AMD clearly has developed some new deeper relationships with companies such as Sun Microsystems, as well as with penetration into leading edge IT accounts such as Goldman Sachs. Channel checks have also indicated AMD may be doing well with other key IT leaders.
VALUATION − AMD STOCK COULD SEE SOME MULTIPLE EXPANSION − We expect that AMD’s 2005 multiple could expand with estimates and as we approach the end of 2004, as the risk of 90nm recedes in H204 and 2005 comes more fully into view. AMD is trading at an attractive 14x our CY05 EPS estimate of $0.99. While this is in line with its historical median, that median is greatly impacted by AMD’s history which had very few years where it made enough money to have a meaningful P/E multiple. To understand the potential return we would look at AMD’s 2005E EV/Sales multiple of 1.1x. This is the lowest multiple in the group at a 64% discount to the median, and is also below AMD’s 10−year median multiple of 1.4x. If AMD were to trade at its median multiple on 2005 revenue, the stock would be approximately $18, up 29% from current prices
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