Price Target: $4.00
Analysts: Vijay Rakesh
AMD -- Pre-Announces Down 10% Q/Q, Processor Inventory Could Impact Peers, Lower Estimates & PT
AMD guided SepQ down 10% Q/Q top line (after a JunQ that was down 11% q/q), and gross margin of ~31% (versus prior 44%) on weaker PC market and write-downs. AMD Processor inventory could impact Channel Processor pricing for peers into 4Q12. With Gartner saying 3Q12 PC shipments flat q/q, there could be more downside in the PC group into YE with 10%+ excess PC Channel inventory. Maintaining our Neutral on AMD as it trades at 0.4x P/S, but lowering estimates and PT to $4.
• AMD guided SepQ down 10% q/q versus prior down 1% q/q (and after a JunQ that was down 11% q/q). AMD also guided GM of 31% down from prior guidance of 44% and 46% in 2Q12 (Jun), driven by ~$100M write-down of inventory on weaker than anticipated future demand across all product lines. GM was also negatively impacted by lower ASPs and lower utilization of its back-end manufacturing facilities. OPEX is expected to decline 7% q/q. AMD is scheduled to report its 3Q12E (Sep) after market close on Thursday, October 18. AMD faces some significant challenges as it is in the midst of significant management changes and PC market challenges.
• PC Market Headwinds - As we have noted before, the PC market is facing multiple challenges from 1) slow Ultrabooks, 2) high Win8 Pricing, 3) new Win8 User Interfaces, 4) High Processor Inventory at AMD and INTC, and 5) competing Surface Tablets entering the market, as well as with PC shipments down 8.3% y/y for 3Q12 (Q/Q shipments Flat, Gartner data 10/10/12).AMD also faces challenges as INTC ($21.68, Neutral) pushes aggressively with Ultrabooks - a market exclusively supplied by INTC. With AMD also taking significant processor inventory write-downs of ~$100M, it could impact channel processorpricing for peers into 4Q12. Key to note both INTC's and AMD's in-house processor inventory was up 10-40% q/q entering 3Q12.
Guide: AMD announced 3Q12E (Sep) revenue that is substantially lower than its prior 3Q12E guide. AMD announced its 3Q12E revenue would be down ~10% sequentially vs. its prior guide of down 1% +/- 3%.
Estimates & Valuation - We are preliminarily lowering 3Q12E results in line with the preannouncement, from prior $1.38B/$0.03 to $1.27B/($0.17), and lowering F12E from prior $5.78B/$0.27 to $5.54B/$0.00. Our F13E goes from prior $5.6B/$0.36 to $5.54B/$0.20 and our F14E goes from prior $6.04B/$0.42 to $5.98B/$0.39. We have lowered our margins for 3Q12E to 31% (from prior 44%) and lowered F12E gross margins to 42-43% (from prior 45-46%). Also lowering PT to $4 from prior $6. Maintaining our Neutral, as AMD trades at 0.4x P/S versus INTC at 2x P/S.