Wednesday, January 03, 2007

Calls of Note Part 1

Advanced Micro Devices (NYSE:AMD) is getting whacked this AM by several negative comments:

- Goldman Sachs is downgrading AMD to Sell from Neutral, as they expect a weak P&L throughout the year given the significant ramp in fixed costs, a weak CPU pricing environment in 2007, and increasing competition from Intel in CY1H2007.

- ThinkEquity's Eric Ross notes that inventories at AMD have suddenly built in the channel, and
prices are plummeting. The firm believes the channel is angry, and PC OEMs are expressing concern about AMD's roadmap (particularly mobile). They fear this will translate into share loss to Intel. With the price war between AMD and Intel re-igniting, they believe AMD has little opportunity of meeting the high expectations for GM and OM it set on its recent analyst day. With capacity building in the channel and the risks of missteps in executing its merger with ATI, ThinkEquity lowers rating to Sell and price target to $15.

Since Mr. Ross and his team returned from Asia at the beginning of December, AMD inventories have built in the channel from essentially zero to roughly one month. They note inventories wereextremely low due to all of AMD's production capacity being allocated directly to PC OEMs. This implies that programs for major OEMs are not going well, or are being cancelled.

The firm has heard from several channel sources that distributors now saddled with AMD parts are rapidly cutting prices to unload these parts. Many distributors are worried they will lose money on these parts (and are not happy about it).

Intel's early release of its new quad core chip at extremely competitive prices will further pressure AMD to lower prices and further impact gross margins. With no real end in sight to the now-beginning price war between AMD and Intel, the firm believes AMD's gross margins could fall into the mid 40% range with little chance of meeting the targets (50% +/- 2%) it laid out for 2007 at its analyst day on December 15.

Rating goes to Sell from Buy with tgt cut to $15 from $30.

Notablecalls: Ouch! AMD most likely going sub $20 today. The GSCO downgrade is a non-event but the comments from Eric are just plain ugly. Additional pressure for DELL?

1 comment:

ADK said...

wasn't channel just complaining about lack of product because of OEM buys of AMD
the allocation to Dell...this smells !!!