Thursday, September 14, 2006

Calls of Note Part 4

- Goldman Sachs notes that while there has been continued speculation regarding the magnitude of AMD's (NYSE:AMD) penetration of Dell (NASDAQ:DELL), they believe that Dell's initial rollout of AMD-based products suggests that expectations may have gotten ahead of reality, at least for the remainder of 2006. Dell's new Dimension products represent a very small percentage of its overall business. Further, while AMD's pending notebook relationship with Dell will drive incremental share gains, they believe that if the extent to which Dell is currently using AMD in desktops is similar to what the firm can expect in notebooks, AMD's market share is unlikely to increase as meaningfully as current expectations suggest. To that end, the firm is republishing their recent analysis which illustrates that AMD's share gains at Dell/IBM in 2006/2007 will likely be more than offset by Intel's gains at HP, the white box market, and the gaming enthusiast market. They continue to recommend that investors Buy Intel and remain Neutral on AMD given Intel's margin expansion opportunities in the coming quarters, driven by: 1) continued restructuring, including the reduction of marketing subsidies to Dell, 2) significantly lower capex, and 3) market share gains.

Goldman continues to expect 10% upside to $22 12-month price target on Intel based on a 20X multiple applied to normalized EPS estimate of $1.00, assuming a 10% overshoot. Regarding AMD, while the stock is down 11% YTD, it has increased about 55% since recent lows, driven by Dell expectations. While they had upgraded the stock to Neutral, fearing such a move, they believe it is overdone and investors shouldn't chase the stock. There is no change to 12-month price target of $19, which is based on a 15X multiple applied to normalized EPS estimate of $1.25.

Notablecalls: Read what the guys from ThinkEquity had to say about AMD couple of days ago. Conflicting views. Of course, Goldman's comments are going to pressure AMD today. But overall I continue to believe AMD is eating INTC's lunch.

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