FBR Research Maintains a 'Market Perform' on Advanced Micro Devices (AMD), Raises Estimates; Prefers MVRL & SLAB

November 19, 2009 7:22 AM EST

FBR Research maintains a Market Perform rating on Advanced Micro Devices (NYSE: AMD), raises price target from $8 to $9.

FBR analyst says, "Recent checks into 4Q PC builds with the top five notebook ODMs andtop four desktop motherboard makers are worse than our month-agochecks. Overall, we forecast 4Q PC builds to decline -1.5% QOQ, worsethan our month-ago forecast of +5% growth QOQ. We are leaving our AMD4Q revenue estimate unchanged for now, particularly given management'sbelow-seasonal guidance, but we note a negative bias to our near-termfinancial estimates and will wait for our next round of checks onemonth from now before potentially cutting estimates. Indeed, we thinkAMD could grow revenues 0%-4% sequentially in 4Q, in line with thefirm's revenue guidance. Separately, following its $1.25 billionsettlement with Intel last week, AMD announced yesterday it will buyback up to $1.4 billion in existing convertible and senior debt, whilealso raising $500 million in new senior notes. As such, AMD's interestexpense should fall by roughly $38 million annually, contributing$0.05 to annual EPS. Thus, we are raising our 2010 EPS estimate from($0.03) to $0.10 due to lower interest expense and depreciation..."

"We maintain our Market Perform rating but couldbecome constructive on shares if we see signs that (1) holiday PCsell-through is reasonably solid, (2) gross margins can sustainablyrise toward 43%-45%, (3) AMD can close its gaping two-year processtechnology lag versus Intel, and (4) AMD can roll out desirableproduct with reasonable price/performance characteristics and rampserver or corporate share. Given heightened 4Q PC build risks,investors may want to focus on enterprise and communications-exposedchip firms for 2010. Preferred value stocks include Fairchild (NYSE: FCS), Microsemi (Nasdaq: MSCC), and TI (NYSE: TXN). Preferred growth stocks include Marvell (Nasdaq: MRVL) and Silicon Labs (Nasdaq: SLAB)."

To see all the upgrades/downgrades on shares of AMD, visit our Analyst Ratings page.

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