Wednesday, December 13, 2006

Calls of Note Part 1

- Banc of America comments on AMD (NYSE:AMD) reducing near-term estimates on weaker pricing trends and evidence of share loss in servers. In the meantime, they are taking this opportunity to reduce near-term estimates on AMD and formally introduce AMD-ATI combined model. Checks suggest that 4Q06 AMD estimates are tracking below firm's. Specifically, while their prior forecast for overall unit growth remains relatively unchanged, they are reducing their ASP assumptions to assume further ASP declines in 4Q06 vs. 3Q06 stemming principally from preemptive pricing actions by AMD against Intel's more robust offerings.

Firm is reducing their Q406 and FY07 EPS estimates to reflect 1) greater than anticipated declines in desktop and server processor ASPs and 2) share loss to Intel within the server segment. Firm's new 4Q06 GAAP EPS est. is now for $0.30 (pf $0.34) down from prior est. of $0.42 (pf $0.46) and below the consensus GAAP est. of $0.31 (pf $0.36). Their new FY07 est. calls for GAAP EPS of $1.04 (pf $1.20) down from prior GAAP est. of $1.20 (pf $1.36) and below consensus GAAP EPS of $1.28 (pf $1.40). They are also introducing FY07 revenue of $7.97b and GAAP EPS of $1.00 (pro-forma of $1.22) for the combined AMD-ATI entity, which suggests relative neutrality.

Specifically, the firm believes the lack of a competitive offering alternative to Intel's Conroe product in the high end desktop segment, has forced AMD to be more aggressive within the low-end/mainstream segments (vs. Intel's Pentium D/Pentium 4 offerings). And while the ramp up at Dell, coupled with strong momentum for AMD's notebook products (Turion 64 X2) are driving solid unit growth for AMD in the December quarter, they believe that a more competitive desktop pricing environment is putting a 'ceiling' on AMD's desktop revenue. This situation, they believe is also extending into the server market, where renewed strength from Intel is forcing AMD to take preemptive pricing actions to protect its market share. This coupled with the well publicized issues for AMD in meeting channel demand - which has also helped Intel gain incremental share in the channel - supports BAC's view of some pressure on AMD's earnings.

Also impacting AMD, they believe, is somewhat more muted momentum in the server business driven by Intel's renewed competitiveness in the server market, particularly in the 2P or DP (dual processor) segment (~80%+ of overall x86 server unit shipments).

Tgt goes to $20 from $23.

Notablecalls: This call comes ahead of analyst meeting scheduled for tomorrow. Note that GSCO was out on AMD earlier this week saying they expect the management to use this meeting to lower ests. The stock has been inching down and I think BAC's note will deal another blow for the bulls. Believe we will see AMD going below $20 level.

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