Thursday, November 09, 2006

Calls of Note Part 2

- UBS is cautious on AMD (NYSE:AMD) saying AMD's slowing momentum on servers in 3Q06 has negative implications for gross margins, leading them to reduce their 2007 EPS estimate to $1.23 from $1.36, as they reduc estimates of Opteron server processor sales to $1.54B from $1.67B in 2007. Furthermore, AMD's focus on Dell is leading to shortages in the channel, which happen to be more profitable than its OEM business.

UBS estimates AMD derives c.35% of its gross profit from Opteron. Due to its 3Q share loss in servers, they reduce their '07 GM estimate to 52.7% from 54.1% - firm sees negative margin impact from loss of share in Severs as more than offsetting AMD's gains in Notebooks.

AMD's 2006-07 capex plan of $4.4bn exceeds firm's estimate of '06-07 Operating cash flow by $1.7bn (ex-ATI). Even if it liquidates its 38% stake in Spansion (c.$0.7bn) and draws down its Fab 36 term loan ($0.9bn), a shortfall remains after the cash paid for ATI - a situation that could worsen if even a modest price war ensues.

Reits Neutral but cuts tgt to $23 from $26.

Notablecalls: I like this note. Notice how AMD failed to see any buy interest yesterday following a bullish call from Morgan Stanley. Sign of weakness. Is the UBS note actionable? It could very well be. But I would not press this bet as my gut is telling me there may be a short squeeze brewing.

1 comment:

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