Ross says that “the supply chain at Dell is incorporating AMD parts slower than expected (due to Dell-specific issues).” He adds that AMD’s margins are likely to be lower than expected due to a higher mix of laptop processors, and says “Dell revenues cannot make up the difference.” Ross also contends that AMD is still seeing price competition from Intel (INTC), though price cuts “are slowing in the near future.” On a seperate issue, Ross says that the recent weakening of AMD’s antitrust suit against Intel and “a much later trial date” of 2009 are negatives as well.
According to Ross, sources in both Asia and the U.S. assert that Dell’s ramp of AMD processors is going more slowly than expected with Dell “losing share and in disarray.” Meanwhile, Ross said new products from Intel “are swamping the supply chain an are likely to cause more dislocation of AMD parts near term.” He also pricing issues ahead from “Intel’s potential pending inventory write-off,” with too much low-end Intel inventory in the supply chain.
Ross cut his third quarter revenue estimate to $1.3 billion form $1.34 billion; calendar 2006 goes to $5.35 billion from $5.45 million; 2007 remains $6.2 billion. He trims profit estimates to 23 cents from 35 cents for the third quarter and to $1.25 from $1.49 for 2006; he remains at $2 for 2007. His price target drops to$20, from $30.
Likewise, Ross has become negative on Nvidia, cutting his price target to $25 from $30. He says the graphics chip supplier will be “strongly” affected by weakness at Dell and AMD.
“Dell, a major NVDA customer, is a mess,” he writes. “We believe no other company gave the Asian supply chain more headaches than the disarray at DELL. We heard that NVDA in particular was at risk from this dislocation, even as their new products ramp nicely.” He says Asian sources say demand for graphics processors in general has been weaker than epected, with integrated graphics taking a larger share of the market.
Ross says the delayed launch of the Sony Playstation 3 in Europe could hurt Nvidia’s gross margins in the near term.
He also writes this morning that “a voluntary review of the company’s stock option grants practices going back to 1999 could once again be an overhang.”
Ross cut his revenue estimates on the company: he now sees the third quarter at $730 million, down from $750 million, and the January 2007 fiscal year at $2.879 billion, down from $2.929 billion. He trims the January 2008 fiscal year estimate to $3.23 billion from $3.28 billion. His third quarter profit estimate stands at 27 cents, but his fiscal 2007 forecast drops to $1.05, from $1.07, and 2008 goes to $1.30 from $1.33.
- Intel is up 28 cents at $20.67.
- Dell is up 5 cents at $22.50.
- AMD is down 57 cents to $24.75.
- Nvidia is off 68 cents to $29.46.