AMD: Some Bright Spots

Includes: AMD, INTC, MRVL
by: Tiernan Ray

Friedman, Billings, Ramsey analyst Craig Berger Friday saw some bright spots for Intel (NASDAQ:INTC) competitor Advanced Micro Devices (NASDAQ:AMD), a little over a month after the company reported a fairly disappointing 2Q, and the replacement of long-time CEO Hector Ruiz with Dirk Meyer. But he still wouldn’t advise you buy the stock.

Berger’s rating on the shares is Market Perform, and he has a $5 price target.

Berger says that “our contacts say the firm is seeing increasing yields and shipments on triple-and quad-core products, driving higher ASPs, gross margins, and better-than-aggregate market growth.” Based on that, he’s raised his sales estimate for this quarter and next by about $50 million each, to $1.554 billion and $1.625 billion, respectively, and narrowed his estimated net losses per share for AMD for the two quarters to 36 cents and 26 cents, respectively. He’s ahead of the Street’s 40-cent loss this quarter, slightly lower than the consensus 24-cent loss.

That said, Berger prefers shares of Marvell Technology (NASDAQ:MRVL), and thinks that the big catalyst for AMD, the expectation the company will unload some manufacturing facilities to reduce its cash burn — what’s known as an “asset-lite” strategy — could happen before the end of the year, but probably won’t. “With business improving, and with the idea of an ‘Asset-Lite’ deal before year-end still possible, we believe ‘hope springs eternal’ among investors, possibly pushing the stock up towards the $7-$8 level,” writes Berger, but “with AMD continuing to burn cash, we remain on the sidelines.”

Among the positive notes, they shouldn’t come as a surprise: July notebook computer sales are tracking above their normal pattern, consistent with HP’s strong comments about notebook sales on Wedesday; and PC sales generally, to judge from motherboard makers, are tracking to normal seasonal patterns, says Berger. AMD is seeing increasing yields and shipments for its triple- and quad-core microprocessors, writes Berger, as “a small bit of momentum shifts back from Intel.” And in graphics chips, Berger sees the company taking more share from Nvidia (NASDAQ:NVDA) than he thinks the Street appreciates (as you might expect from Nvidia’s tough quarter) — hence the rise in his estimates.

(See also Friday’s note on Scott Black of Delphi buying into Nvidia.)

AMD shares Friday closed up 5 cents, or .9%, at $5.81.