Friday, July 14, 2006

Calls of Note Part 1

- Thomas Weisel Partners comments on considerable industry speculation that AMD (NYSE:AMD) may pursue an acquisition of ATI Technologies (NASDAQ:ATYT), although such an outcome is by no means certain.

In light of AMD's technology road map, and specifically its Torrenza technology, the firm believes that such a merger would not be so far fetched. Firm's analysis indicates a merger would likely be 7-12% dilutive to 2007 EPS estimates based on take-out premiums of 20-40%, assuming no operating synergy and would be neutral to accretive within a couple of quarters assuming synergy. In addition, they expect meaningful longer term synergies based on shared technology road maps.

The key benefits would be 1) accelerating Torrenza adoption into notebook/desktop, 2) bolstering its leadership of ultra-high-end desktop (with 4x4) and 3) enhancing AMD chipsets resulting in platformization, which could grow market share, although with some risk.

Notablecalls: Would not be surprised to see some interest in ATYT following the call.

- UBS comments on Apple Computer (NASDAQ:AAPL) ahead of results noting their checks continue to show solid demand for MacBooks, lending support to their 3Q06 (June end) estimates, offsetting q/q declines for iPods. Firm estimates 3Q06 EPS of $0.42
(consensus $0.44) based on 24% y/y revenue growth (flat q/q) to $4.353B factoring in 7.8mm iPods (+27% y/y) & Mac unit of 1.32mm (+12% y/y).

Last year Apple guided for flat sales for 4Q05, which, in firm's view, makes the consensus view for 13% q/q growth puzzling. They believe AAPL can back slight q/q growth for 4Q06 due to Mac momentum but expect it to cite the usual risks. By now, investors seem well aware of the potential for new iPods to be launched later in calendar '06 than previously expected.

Given that checks seem to back views that new iPods may ship later this year than the firm previously expected, their new 4Q06 estimate is $0.47 vs. $0.50 based on revenue of $4.63B (+26% y/y) vs. $4.8B.

With shares down approximately 17% since the beginning of June, they believe expectations for a smaller sequential boost in iPod sales for Apple's fiscal 4Q06 have worked their way into shares. In addition to adverse stock market and geo-political conditions, the firm also believes shares have been impacted (although to a much lesser extent) by Apple's internal investigation discovering irregularities in the issuance of certain stock option grants.

Maintains Buy but reduces tgt to $77 from $90.

Notablecalls: Not actionable but good to know category.

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