Monday, December 11, 2006

Calls of Note Part 2

- Goldman Sahcs' Semi team notes that AMD (NYSE:AMD) is hosting an analyst meeting on Thursday, which they expect to focus on the company's financial model, market positioning and manufacturing strategy. Firm believes the event may serve as a negative catalyst for the stock, as they think AMD is likely to lower Street 4QCY06 revenue and gross margin expectations in light of weak pricing, particularly in the high margin server segment, as well as the integration of the ATI acquisition. They continue to see about 10% downside to their $19 twelve-month price target, which is based on a 16X multiple applied to normalized EPS of $1.20. Believed the greatest risk to price target is significant share gains.

Firm also notes that December NAND contract prices, released last Friday, showed significant price declines of 10-25%, depending on the configuration. Relative to SPE stocks, while the Street is arguing that DRAM spending will prevent a severe SPE downturn, they argue that significant NAND excess capacity (as evidenced by these NAND price declines) will back up into DRAM thus driving DRAM prices down and driving a second leg of SPE order weakness in 2H07 with 1H07 SPE order weakness coming entirely from NAND.

Notablecalls: Negative comments from AMD would definitely hurt the stock. So I would not be surprised to see some weakness ahead of the meeting. GSCO's comments on DRAM are also noteworthy but I just don't see how weakness in NAND (gadgets) can back into DRAM (PC). I continue to maintain my positive stance on MU around current levels.

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