Merril Lynch Neutral on "overpriced" AMD because it will earn only $0.40 in 2004 and $0.55 in 2005!
This taken from a post by "skeptically" on Yahoo. No link provided. "He" says it is cut and paste from the opinion.
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While we currently do not have any Sell-rated stocks, our
analysis found that the market appears to be consistently
overpricing AMD and NVIDIA on a relative basis. In
general, we tend to steer clear of money-losing companies,
companies with deteriorating competitive positions or
stocks that are obviously overvalued relative to our
universe of coverage.
Company Previews
Advanced Micro Devices (AMD, C-2-9, $17.10)
We expect AMD to slightly beat our Q104 estimates of
$1.21 billion in revenue, flat sequentially, and EPS of
$0.04. Although we are not expecting any significant
change in product mix between microprocessor and
memory, we expect gross margins to decline slightly due
to the mix shift within the microprocessor business.
We expect the microprocessor business, which accounts
for about half of total sales, to see a muted seasonal
decline in Q104. However, we also note that AMD intends
to ramp the Athlon 64 cautiously during the first half of
2004. That’s good news insofar as AMD can probably
make better money on Athlon XP than it can on Athlon 64,
at least until the 90nm transition hits in the second half of
the year. Overall, we expect Q104 units to decline 5%
QoQ in line with seasonal trend, but ASP should increase
due to mix shift toward Athlon 64.
AMD’s memory business should fare well despite a
seasonally weak quarter. Our checks suggest that business
remained strong throughout the quarter, especially given
that Intel has yet to regain market share in the business.
We are modeling Q104 flash memory revenue to be flat
sequentially. However, we expect Intel to compete more
aggressively in the second half of the year by increasing
unit output and lowering prices.
The calculation of the addback associated with Fujitsu’s
minority interest in FASL is tricky. The addback is not
simply 40% of the reported operating profit for memory –
the actual line item is difficult to predict, although we do
believe that it will become negative as FASL swings to
profitability during 2004. We are modeling an addback of
$18 million in Q104.
For Q204, we are looking for revenue to improve 5% QoQ
to $1.26 billion, and EPS of $0.11. Microprocessor
revenue should grow 7% QoQ, which is faster than
seasonal due to increasing ASPs. We expect memory
business to grow 3% QoQ amid more competition.
Competitive momentum is in AMD’s favor, but we struggle to understand AMD’s attractiveness as an
investment. The earnings outlook—$0.40 for 2004 and
$0.55 for 2005—does not make AMD look attractively
valued. We can buy other companies with improving
competitive momentum at much lower valuations. AMD is
making progress, but needs to show that it can deliver
enough earnings to justify the stock price before we can
get more interested. Our rating stands at neutral.
Comment: "The earnings outlook $0.40 for 2004...." He seems to believe that because he says it, it must be true. It's called reification in philosophy.
