Thursday, March 01, 2007

Calls of Note Part 1

- Bear Stearns notes investors should stay on the sidelines on AMD (NYSE:AMD) even at current levels. Trough valuations get them to a price of $11-$12, and given further deterioration in fundamentals and negative data points from their recent channel checks, the firm believes AMD has downside to these trough levels. They expect AMD to gain share in 2H07 and 2008, after share losses in 1H07, but these share gains will be achieved through aggressive pricing, not because of its technological edge.

AMD's 1Q unit shipments are tracking well below firm's conservative expectations (they have already factored in excess inventory exiting 4Q in their earlier estimates) due to weaker than expected demand for AMD in mature markets, the company's inability to penetrate existing accounts given its less competitive product roadmap, and belief that some of its desktop customers have increased their activities with Intel. Firm expects AMD's unit share to decline 140 bps QoQ to 23.7% in 1Q. Though 1Q price declines are well known, they believe AMD's 2Q processor pricing will deteriorate significantly beyond current market expectations. Bear is lowering 1Q revenues from $1.65B (-7% QoQ) to $1.53B (-14% QoQ), and 1Q EPS from ($0.11) to ($0.22). Maintains Peer Perform.

Notablecalls: So Bear thinks it's not the time to bottom fish in AMD. They are most likely right. Note that ThinkEquity's Eric Ross took his tgt on AMD to $12 almost a month ago citing similar reasons.

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