Thursday, June 08, 2006

Calls of Note Part 2

- Citigroup is reducing their estimates for AMD and Intel, reflecting concerns about the 2Q06 microprocessor pricing/unit environment. Data points indicating a below seasonal 2Q06 PC environment are plentiful, creating a difficult unit backdrop for microprocessor companies; this is largely factored into estimates. In addition to this, however, field work at the Computex 2006 trade show confirms firm's fears that a more aggressive price war in microprocessors is forthcoming, driving reduction in estimates.

Meetings with motherboard and PC companies at Computex Taiwan (the world's second largest PC show), uniformly suggest that Intel's forthcoming price cuts (scheduled for late July across Intel's entire desktop and notebook product lines) will drive share gain for the company (one tier-one boardmaker suggested their 70/30 Intel/AMD split could shift to 80/20).

AMD's tgt goes to $33 from $42 with INTC's tgt remaning at $21.

Notablecalls: AMD's chart looks like it may go lower. Citi's call however is already yesterday's news.

- UBS lower their AMD target price to $33 from $39 based on a lower target PE multiple of 18x that reflects firm's concerns regarding AMD's 1) Cash flow challenges as a result of its aggressive capacity expansion plans, 2) Competitive challenges from INTC based on its road map through 2008, and 3) Uncertainty over AMD's strategic direction. Maintains Neutral.

Notablecalls: Scroll up. Replace "Citi" with "UBS".

- Piper Jaffray saying they expect NTES to beat firm's current estimate of 6% sequential growth in gaming revenues, potentially producing 8%-10% sequential growth, or an upside of $1-$3m in revenues, and $0.01-$0.02 in EPS. Given the strength they have seen in Fantasy Westward Journey, the company's top game, they also expect strong Q3 guidance.

NetEase is growing earning at a rate of at least 25%, yet the stock is trading at 13x '07 EPS, considerably lower than its growth rate or the Chinese group, which trades at 22x (ex. Baidu). Piper believes their growth assumptions for 2007 are conservative, especially if the two new games, Da Tang and the soon-to-be-released 3-D game Tian Xia, are successful. As such, earning growth could be substantially higher than firm's current estimate as the company has margin leverage potential. Reiterates Outperform rating and $30 price target for NTES.

Notablecalls: Not actionable but good to know category. NTES almost always beats the ests. So no surprise there. But the shares do look cheap.

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