AMD shareholders have had a rough time, so they’ll be pleased to hear that FBR analyst Craig Berger thinks the company’s products are finally “gaining traction.” Alas, Berger also thinks the company will run out of cash in six months.
Berger says that his channel checks indicate that AMD is doing better than expected on ASP, gross margin, and growth. Berger also says that AMD is gaining share in graphics chips with nVidia:
Recent checks into PC builds suggest 3Q shipments are tracking towards normal seasonal growth. For AMD, our contacts say the firm is seeing increasing yields and shipments on triple-and quad-core products, driving higher ASPs, gross margins, and better-than-aggregate market growth. AMD is clearly gaining market share in graphics chips from nVidia, a known among investors in our opinion, though we believe the magnitude of share gains may be better than generally understood. Raising our 3Q estimates slightly, increasing our 3Q revenue estimate from $1.5 billion to $1.55 billion and our EPS estimate from ($0.41) to ($0.36).
But as with all things AMD these days, the other shoe is about to drop. Unless AMD gets moving very quickly on its nebulous reorganization scheme, “Asset-Lite,” Berger says that the company will be out of money in April of 2009:
Stepping back from the very near term, getting its ‘Asset-Lite’ deal done is of paramount importance in order to avoid raising additional capital. We think the economics and licensing issues underlying an ‘Asset-Lite’ deal are challenging hurdles for any counter-party to overcome, and AMD may not get this deal done in a timely fashion. Without the deal, AMD could be facing another cash crunch as it has taken on $5BN of debt and burned through a lot of cash. Management says it needs to raise capital when gross cash falls to $800 million, which we think could happen in April 2009 without an ‘Asset-Lite’ deal.
Berger rates AMD as Market Perform and reiterates his $5 price target.
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