Shares of Advanced Micro Devices (AMD) today are up 5 cents, or 2%, at $2.65, after Macquarie Equities Research’s Shawn Webster today raised his rating on the stock to Outperform from Underperform, with a $3.30 price target, writing that while his Q1 estimates are going lower, his full-year outlook is improving, helped by “stable” execution on the company’s part, and a boost from chips sold into the video game market.
Webster raised his full-year estimate to $4.81 billion and a 26-cent-per-share net loss from a prior estimate for $4.57 billion and a 26-cent loss.
AMD’s loss of market share to Intel (INTC) and Nvidia (NVDA) in both PC CPUs and graphics processing units (GPU) is getting less bad as the company “executes” better, writes Webster:
We have been cautious on AMD since our downgrade in September of 2011 on execution risk. However, we believe the company�s roadmap and execution are stabilizing and the risk of share loss is becoming less, particularly in graphics chips, but also in microprocessors. We estimate market share should be stable in both areas in the coming year.
At the same time, Webster has very low expectations for the PC market this year as it affects both AMD and Intel, but given a deficit in CPU inventory in Q4 of 3.9%, a big swing from a 4.7% surplus in Q3, he thinks the two will do just fine even if there’s a 5% drop in PC shipments this year, which is actually worse than the 1.3% decline IDC last week projected:
We further estimate our current unit forecasts for AMD and INTC can accommodate a 4.8% YoY decline in PCs in CY13 due to the significant inventory burn coming into the year. Hence, any upside to a down 5% year in PCs this year could result in unit upside for INTC and AMD.
Meantime, the video game market could turn out better for the company than the Street is recognizing, based on how Sony‘s (SNE) PlayStation 4 and Microsoft‘s (MSFT) “Xbox 720″ play out:
Our Japan Sony/gaming analysts Damian Thong and David Gibson believe both the Playstation 4 and Xbox 720 will begin shipping in 4Q13. While our checks indicate Sony�s Playstation could begin shipping as soon as August, our base assumption (in line with our Japan colleagues) is 2.5 million Playstation 4 units and 2.3 million Xbox 720 units shipped in Q4 With AMD chips confirmed in the Playstation 4 and our expectation for a win in the X-Box 720 we have included the new business in our bottoms-up forecast. We note the business model should be different from AMD�s existing Xbox 360 and Nintendo Wii U wins which were unit-royalty bearing agreements as opposed to selling finished chips. The processor used in the Playstation 4 is an eight-core CPU, based on the company�s new architecture ( ?Jaguar�), integrated with an AMD graphics chip. We estimate that average selling prices for the company�s game console business are roughly $60 due to its premium specifications. As a result, we are adding roughly $96 million of Sony/Xbox console chip revenue for AMD in 3Q13 and $228 million in 4Q13, and raising our CY13 and CY14 revenue estimates.
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