Wednesday, February 07, 2007

Calls of Note Part 2

ThinkEquity's Eric Ross notes they continue to hear from their sources that Advanced Micro Devices (NYSE:AMD) is going through an extremely tough quarter, with inventories piling up at the channel as Intel takes more shares in the server segment. Firm expects AMD to continue to experience share loss and ASPs erosion in the server space. Desktops and notebooks are also at risk. Near-term outlook remains challenging and it does not look like the environment will improve for AMD at least until the second half of this year. Firm reiterate their Sell rating and lowers price target from $15 to $12.

As witnessed by its recent share loss to Intel, AMD has lost its technology edge at least in the short term and is becoming more and more vulnerable to market share losses in its core chip business. With pricing extremely competitive, there is no overwhelming impetus by PC OEMs to use AMD parts. Checks indicated that some major PC OEMs have moved some longer-term designs back to Intel. AMD inventories have continued to build in the channel.

Firm continues to hear from several of channel sources that distributors are rapidly cutting prices in order to unload AMD parts. Some of these are in response to Intel's rebates and marketing dollars, but it is obvious price wars are coming. Also, Intel is taking more shares away from AMD in servers.

Estimates: 107 remains at $1.65 billion; CY07 remains at $7.12 billion. EPs goes Q107 from ($0.03) to ($0.12); CY07 from $0.50 to $0.40. Lower gross margins in 1Q07 from 45% to 42%.

Notablecalls: Expect to see futher pressure in AMD over the next couple of days. Eric is the man!

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