Calls of Note Part 2

- Banc of America notes that as previewed, Dell announced an expanded relationship with AMD (NYSE:AMD) to incl. desktops and 2 way servers.

Somewhat different from firm's expectations. The primary points of difference were: 1) AMD would be used (at least initially) only in Dimension desktops, and (as implied by Dell management) for the consumer market only; 2) the absence of a notebook announcement; and 3) the earlier than anticipated desktop launch (Sept).

An earlier than anticipated ramp, but not the rocket launch some had envisioned. Firm's analysis implies that AMD is unlikely to witness a material boost to its Sept. qtr results by virtue of the desktop win related to Dell's low end consumer systems - which they estimate would contribute roughly $8-10m in sales - likely at lower than corporate average ASPs and margins. In addition, we also believe that, similar to Dell, AMD will likely incur some start-up costs (mostly op-ex) from the ramp of the new business, which may impact AMD's profitability in Sept/Dec.

Firm notes they haven't heard the last of AMD-Dell yet. The modest start notwithstanding, the relationship with Dell does have the potential to broaden beyond low end desktops. Additionally, they still expect Dell to broaden the use of AMD processors into notebooks in the Dec qtr.

Likely less negative for Intel. By extension, the announcement implies less of an impact to Intel's n-t est. as the initial ramp is targeted at low end consumer desktops - a segment that is likely least profitable to Intel.

- Stifel notes that last night's announcement expands AMD's presence beyond 4-way servers and into Dimension desktop's targeting consumers. Desktops using AMD's processors are expected to launch next month.

Notably, AMD CEO Hector Ruiz stated in the recent AMD/ATI conference call that each point of additional MPU market share achieved equates to $300 million at a 60% plus gross margin. Recent data show AMD to have 17.9% PC market share, 20.8% desktop share, and 11.5% laptop share.

Dell reported having a world-wide market share of 19.3% at quarter- end and a dominating 34.2% share of the U.S. market. Dell also reported average total revenue per unit of $1,460 in 2Q, up from $1,430 last quarter, and below the 2Q05 average of $1,480.

While very positive for AMD, Dell's announcement fell short of expanding its relationship into laptops, although we would expect an announcement of this type to come later this year. At this early stage it is difficult to quantify the near-term financial impact to AMD as no specifics were given as to the types or numbers of models that will be using its processors.

If one assumes roughly a million desktop units could be shipped during the fourth quarter with an average CPU price of $72, AMD could see a top line benefit of $72 million. Given firm's expected 4Q net margin of roughly 11%, AMD would see $0.015 a share accretion in 4Q under this scenario. They believe an additional $0.01 a share contribution could result from new Dell server business.

Despite the positive news regarding inroads at Dell, they continue to rate shares of AMD Hold as current announcements, along with predicted future laptop announcements, were largely expected.

Notablecalls: AMD is likely to trade down on this. But the downside is most likely limited.