Analyst downgrades Intel, upgrades AMD
6/16/2011 12:34 PM EDT
AMD's shares 'depressed'
Berger said AMD’s shares, which traded around $7.39 at midday Thursday, are depressed ahead of a possible boost in the second half of 2011 from sales of the company’s Fusion accelerated processing unit, which combines a microprocessor and graphics on a single die. Fusion APU’s are priced 10 to 15 percent below Intel’s Snady Bridge and have better DX11 graphics compared with Intel’s DX10, Berger said.
It’s possible that AMD might pick up 3 to 5 points of microprocessor market share, taking AMD to 18 to 20 percent of the total client CPU market and potentially adding between $900 million and $1.5 billion to AMD’s annual sales, Berger said.
“While these AMD checks are incrementally positive, we note that Intel is accelerating its move to 22 nm and 14 nm, has major scale, manufacturing, and cost advantages versus AMD, and could effectively ‘squash’ AMD’s Fusion efforts at will with more aggressive pricing tactics,” Berger wrote.
“Thus, our positive stance on AMD is largely tactical in nature and less of a long-term investment until these competitive dynamics can be further assessed under AMD’s new foundry model,” he said. FBR analysts are still concerned about AMD’s lack of strategy for media tablets and other mobile products and the fact that the company has been without a permanent CEO since Dirk Meyer resigned six months ago, Berger said. A new CEO hire by AMD could drive the company’s shares higher, depending on the person, he said.
We still have concerns about AMD’s lack of strategy (tablets and mobile) and leadership, though a new CEO hire could drive shares higher, depending upon the person. We are raising our rating on AMD from Market Perform to Outperform, and our price target from $10 to $12, based on a higher 15x target P/E multiple (including stock compensation and excluding net debt and interest expense).
Berger added that checks with notebook ODMs point to slightly strong builds for the second quarter, but suggest weakness in the third quarter. Notebook builds are projected to increase by 6 percent in the second quarter compared to the first quarter, Berger said. First estimates of third quarter notebook builds indicated just 4 percent sequential unit growth, below typical third quarter growth of 8 to 12 percent, Berger said.
“While 3Q11 notebook builds could get ratcheted up somewhat once visibility improves, we note that the PC market generally remains sluggish.