Advanced Micro Devices, Inc.

Investment Notes

 AMD

 

 

February 10, 2006  More stuff

 

Finally sold the AMD(40.40).  Price got too rich for me.  See some projections below.  Projections below do not include dilution.

 

 

	Hypothetical Scenario
Tangible Book Value	$3,200
Net Profit	$600
Growth Rate	12.00%
Future Value of above 10N	$20,468
Growth Rate after 10N	5%
Future Value of Net Profit in 10N	1,864
Future Value of Net Profit in 15N	2,379
Future Value of above 15N	36,422
Current Shares O/S	453
Current Share Price	40
Current Market Cap (PV starting)	18,120
PV from Above	18,120
FV 10N from above	20,468
Years	10
ROI on above	1.23%
PV from Above	18,120
FV from 15N above	36,422
Years	15
ROI on Above	4.76%
Alternate Method (Sanity Check)
Future Value of eps in 15N	2,379
P/E estimate	15
Market Cap (FV* future P/E)	$35,685
Years	15
Current Market Cap	18,120
ROI imputed	4.62%

 

 

January 30, 2006 (41.48)

Well, we still hold and AMD has almost doubled in price since our last posting.

1.    Value Line notes (1/13/06)

        a.    expected eps for 2006 of $0.80.  This was obviously before recent earnings announcement.

        b.    really says very little for doing due diligence.  They raised the timeliness to their highest rating of "1" on 1/13/06.

 

2.    Looked  at the bonds which are rated B1/B+.  7.75% due 11/2012.  have a YTM of 6.45% trading at 107.  Notice how the bond agencies have raised the ratings since our last posting on 12/16/04.  These notes are callable in 11-01-2008 @ 103.875.

3.    Debt / Equity seems to have dropped to 41%.  AMD also recently announced an offering to sell $500M of stock.  Possible over-allotment of $75M.  226M to be used to reduce the 2012 debt.

4.    Market share has increased substantially (still not in Dell's).  According to First Global report, share has risen from 9.6% in F2004 to 15.3% in F2005.

5.    Watch the Net Margins.  Morningstar on 1/24/06 mentions operating margins "in the low-20% range in the next few years".  This will be interesting to watch in relation to enterprise value.  Morningstar thinks capex will fall to "mid 20% of revenues," as AMD grows into capacity.

6.    Waiting for the 10K.  This will give us the ability to tear apart the financials, assumptions, dilution, stock option expense, etc.  Statement of Cash Flows was not supplied with 8K.

 

EV analysis

   

 

 

 

December 16, 2004

AMD has come along way since our purchases in the mid single digits.  AMD today is selling for $22.98.  Risks include the balance sheet debt, slowdown, Intel, etc.  Positive possibilities could be the potential use by Dell.  I read in a report by Piper today, that they do not expect Dell to start using AMD in their hardware.  AMD has certainly reached our target pricing.   Not buying more at this point.  The possibilities of selling are there.  Cash flow on the face, looks like it is potentially being crimped by capex.  Supposedly this has much to do with Dresner Germany plant.  Other sell sides have joined on lately, including Piper on 12/16/04, Smith Barney raising from Sell to hold during mid november.  Watch mobile hand set market for flash.

Looked  at the bonds which are rated B3/B-.  7.75% due 11/2012 have a ytm of 6.632% trading at 106.75.  Value line sees this as fully valued as of 10/15/04.

According to an Argus reported dated 11/16/04, AMD would like to reduce debt to capital to about 20%, and would like an improved credit rating to investment grade.  2005 will not be cash flow positive because of capex.  Argus notes that AMD's international presence would lead to difficulty in a strong dollar market. They expect this in 2005.

Need to watch the interest coverage ratio.  I used a value of 5.0 for F2005 est based on following:

F2005 net income est 220

projected interest expense    110

projected tax expense 65

Interest coverage = (pretax income + int exp)/int expense

IC= ((220+65)+110)/110

IC = 3.59 .  We like to see > 4, but this looks manageable. Just something to watch.

 

 

August 8, 2002

 

 

Fred Hickey's August 3rd issue of High-Tech Strategist spent a touch of time on AMD. He is still very bearish on the entire market, primarily his concerns are valuation driven.  Fred has a long term like of AMD, although because of the market he expects to see lower prices in the future ( keep in mind that AMD was at 7.31 when article was written).  Fred goes onto explain that AMD has "all but accused Intel of channel-stuffing in Q2.  He went onto indicate that  Intel is flooding the market with low cost Celerons. Claims that AMD said " Quite frankly, Intel has got a larger buildup in their PC OEM's"...which "becomes a little bit like stale fish over time." Fred then hints at another potential Intel earnings preannouncement is in the works..

 

 

 

 

November 19, 2001

 

Since 1991 AMD (13.49) has traded at multiples of .75 to 2X annual revenues (occasionally higher, but I am ignoring that for my research).  Projected revenues for F2002 are 9.20 per share (Value Line 10/19/01). Based on revenue multiples we would have a share price of about 6.90 to 18.40 per share. Don’t forget that we are in a technology depression and that revenues may be abnormally low. I see that projected F2002 revenues are about 62 % F2000 revenues and near F1999 revenues.  If I look at Intel (INTC 30.16) I see that projected F2002 revenues are about 82  % F2000 revenues and also near F1999 revenues.  Intel has been trading at around 3X to 10X revenues historically. AMD is trading at around 1.5X book value, whereas historically has traded at 1X to 2X book value. Again, book value might be abnormally low due to the difficult business conditions. Looking at Value Line Cash Flow appears to be less than capital expenditures. This is something to watch, although debt / Equity is at a multi year low of near 23 %. Shares outstanding have grown from 297 M in F1999 to a projected 370 M in F2002 (this is equates to nearly $ 1.0 billion in market cap., also something to watch).  Growth flow ratio is comfortably low at 5.16.  PEG ratio also looks good, assuming eps of 0.91 in F2005.