Wednesday, July 19, 2006

Calls of Note Part 1

- Merrill Lynch notes that after literally years of market speculation but no real confirmation, our team's checks have confirmed that Dell is likely to launch AMD (NYSE:AMD)-based desktop and notebook PCs. Based on the information the firm has, the launch will likely be in the fourth quarter of the year. Although if they're correct, they wouldn't be surprised to see AMD talk about the products on its upcoming earnings call. Firm's Asian analyst Tony Tseng indicates that the desktop products are likely to come from Taiwan-based ODM Mitac. Quanta is the most likely partner on the notebook side, although confirmation of that development has been more difficult.

According to the firm it would be a mistake to conclude that a broader Dell relationship dramatically changes the picture for AMD. To the extent that AMD-based products help Dell recover, some of the gains would likely come at the expense of other AMD-based products. On the other hand, it's true that access to Dell's channel could give AMD a shot at enterprise client business that it hasn't had until now. AMD's tough near-term prospects but solid long-term story balance out, at least for now - Neutral on the stock and expect it to trade sideways for the intermediate term.

Notablecalls: Not actionable but good to know category.

- Thomas Weisel says they are expecting Synaptics (NYSE:SYNA) to report June quarter revenue and EPS in line with or slightly below firm's estimates of $43.6mn (up 8% q/q) and $0.14 (versus consensus of $42.8mn, up 6%, and $0.14). Company guidance was for "up to 10%" q/q revenue growth in the quarter.

Despite well publicized overall market weakness, they remain comfortable that Synaptics grew its notebook business (about 90% of sales) in the quarter, however, for three reasons: 1) checks continue to indicate Synaptics is likely gaining modest share from its largest competitor, Alps Electric; 2) Synaptics notebook revenue has not historically exactly mimicked notebook ODM sales and shipments; and 3) checks also indicate modest uptake of the higher ASP dual-mode touchpad, which should help abate blended ASP erosion.

Checks suggest solid September Quarter awaits: Firm has modeled revenue to increase 23% q/q to $53.6mn and EPS of $0.23, modestly above consensus of $49.6mn and $0.20 and company guidance of 10-20% top-line growth.

Reits Outperform noting that although 2Q could prove soft, tey remain positive on SYNA's longer-term competitive position and growth prospects. Firm believes the shares remain attractive, trading at 18x CY07 EPS estimate of $1.10.

Notablecalls: I suggest you don't buy SYNA until they report Q2 results and takes another 10-20% hit.

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