Concerns arise about AMD Puma, analyst suggests AMD may soon be sold
By Ann Steffora Mutschler, Senior Editor -- 2/13/2008
Semiconductor analyst Doug Freedman of financial research company American Technology Research released a report today suggesting there may be a potential problem with microprocessor maker Advanced Micro Devices (AMD)’s upcoming Puma platform for notebooks, which would likely hit the company’s stock and would increase pressure on the board to look at a possible sale of the company or a management change.
“Our channel checks suggest AMD’s Puma platform for notebooks may have a technical glitch. We have not been able to confirm this with AMD and if a problem exists, AMD could have a fix in the works that saves the launch. However, given AMD’s recent history of glitches with Barcelona/Phenom, we believe the mere suggestion of a potential problem has OEMs more cautious about AMD’s roadmap. As a result, we believe the mere potential for a problem with Puma, even if a fix is in the works and the platform is scheduled for an "on-time" launch, will likely have an impact on initial volumes for Spring refresh,” Freedman said.
“Per our commitment at the AMD Financial Analyst Day in December 2007, AMD remains on track for the delivery of its next-generation notebook platform, “Puma,” for Q2 2008 and has not encountered any “technical glitches” that would deter that launch timeline,” the company said in a statement to EDN.
“Doubling the design wins over the AMD Turion 64 X2 processor launch, AMD expects a record number of powerful AMD notebook platforms available from all of our key OEM customers beginning in Q2 2008. The components of the AMD notebook platform – ATI Mobility Radeon HD 3000 series graphics, AMD Turion Ultra processors, the upcoming AMD 7-Series chipset, and industry-leading wireless technologies – were optimized to enhance the user’s experience and work together to deliver exceptional visual performance, energy efficiencies and all include features that extend battery life,” AMD added.
It is believed that OEMs are attempting to seek alternate solutions, but as a result, Freedman is lowering his estimates on AMD, with the longer term thesis that AMD shares will reflect most of the public bad news.
A Puma chipset problem could be a positive for both Intel and nVidia, Freedman noted.
--The stock ($6.34 vs. yesterday’s close of $6.41) priced in an overly pessimistic view of the company’s long-term viability;
--AMD’s debt represents a compelling opportunity;
--The stock is a “cheap call option” on a potential restructuring with a 1-up, 4-down scenario;
--ATI share gains likely.
“All but number 4 would remain intact even with a poor Puma launch,” Freedman said. “We believe ATI’s unit growth would be impacted from Intel’s notebook share gains where nVidia has a commanding share of design wins.”
However, he believes a Puma setback would add another two potential catalysts to the list, namely, a regime change or sale of the company, possibly to nVidia.
“We believe AMD would face mounting pressure from shareholders, to restructure the company with a focus on a change in leadership. We believe even without a potential Puma problem AMD’s shares would benefit from a change in leadership as recent events (ATI acquisition and write-down, Barcelona/Phenom launch issues) are enough to suggest poor execution. That said, a Puma crash launch could prove a catalyst for change as AMD would have a hard time meeting any of its break-even targets in 2008 and our model suggests it could spread into 2009,” Freedman said.
In terms of AMD not changing management, Freedman believes one of the reasons for that is due to a lack of a better replacement in the market, with the exception of nVidia co-founder, CEO and president Jen-Hsun Huang.
Freedman does not believe Huang would even consider leaving nVidia to go to AMD, particularly because he said so specifically, but at the same time, would not likely walk away from the challenge of buying AMD on the cheap and turning the company around.
In addition, Freedman noted that the Intel/AMD road-map of integration of the CPU/GPU could pose a risk to nVidia, and buying AMD would propel nVidia into a formidable competitor for Intel with the upside coming from Huang’s ability to re-architect AMD’s design.
AmTech lowered its estimates to reflect the potential for a Puma miss. “While we may prove early and/or wrong in our approach, we believe it is safer to err on the side of caution given the recent road-map hiccups and potential for OEMs to act out of fear of a potential flopped launch and secure parts from Intel,” he said.
Finally, AmTech maintained its “Buy” rating on AMD stock. While a Puma problem would likely hit the stock, AmTech believes it would also increase pressure on the board to look at a possible sale of the company or a management change and believes nVidia could make a sensible and willing acquirer.
“We believe AMD execution issues continue to haunt management and shareholders, as such we would have to think any management changes would be viewed positively by the market,” Freedman concluded.
For EDN’s coverage of AMD’s financial analyst day, see, “AMD seeks profitability, says Barcelona botch won’t be repeated,” and “AMD: Fading fast, nearly fini?”
© 2009, Reed Business Information, a division of Reed Elsevier Inc. All Rights Reserved.