AMD already has alerted analysts that, thanks to sales of 1.2 million high-priced Athlon chips, its first-quarter revenue will break $1 billion for the first time ever. That news, announced April 5, pushed the shares to a high of 75 1/2, before they dropped in the tech-stock selloff. AMD closed Tuesday at 68 5/16.
But even if the company posts an upside surprise when it reports on Wednesday night -- the
analyst consensus is 52 cents per share -- the stock still may suffer from second-guessing. Even
analyst Joseph Osha, who upgraded the stock April 5 to near-term accumulate from neutral, has reservations.
He's expecting 56 cents per share for the first quarter and says the stock could hit 120 within 12 months, but only if all goes right: "They have a product road map that's very important to hit with little margin for error."
But for long-term investors, lingering skepticism from the Street means only that this stock has more room to rise. Many institutional investors still are holding out, says longtime AMD investor Peter Klein, portfolio manager of hedge fund
Gelfand Maxus Asset Management
, until AMD's earnings become consistent and predictable. Until then, he says, it isn't time to bail out. "We are looking for an exit strategy, but we aren't there yet," he says.
Consistency is certainly not AMD's strong suit. In the first quarter of 1999, AMD had manufacturing problems so severe, many of the chips coming off its assembly lines were clunkers that only could be
That helped produce a loss of 81 cents per share. In the run-up to its first-quarter report last year, AMD issued an earnings warning in February, another in March and another bleaker estimate in April.
Just six months ago, the company was in such
dire straits, it was selling off assets to stay afloat; its stock hovered around 17 a share, the same price you could have bought it for in 1987. CEO Jerry Sanders repeatedly swore the problems were over, and each time analysts just chuckled.
Now it's the longtime investors who are chuckling, especially because AMD stock has outperformed both Intel and the
Nasdaq Composite Index
since late October. "The earning power is there," Klein says. "It just needed to be unlocked."
Helping to unlock that earnings power were problems at Intel. Just as AMD was launching its Athlon, Intel had to delay the launch of its high-end Coppermine chip. And when AMD was producing the Athlon in large volume, Intel was forced to
delay the launch of its Camino chip set, which uses
Shortages of Intel chips forced
to resume sales of AMD-based machines, something it stopped doing last summer. The result? Sales of Athlons were so high that analysts missed the company's fourth-quarter earnings by a
whopping 42 cents a share.
Even AMD's harshest critics concede that all the portents for 2000 are positive. Manufacturing capacity in the chip industry is tight, and that means high prices for companies with plenty of supply, like AMD, which just opened a new manufacturing plant in Germany.
With the rollout of
, PC shipments should grow 20% this year, and that means 20% growth for AMD, even if it just holds on to its market share, says
US Bancorp Piper Jaffray
analyst Ashok Kumar, whose firm is not an underwriter of AMD. He rates the stock a strong buy.
He's skeptical, though, that AMD can continue to grow for long. This is a peak year for PCs, he argues, and the popularity of non-PC Internet devices could start to cut into PC growth next year. That could hurt AMD, which doesn't have much to offer outside of PC chips. Meanwhile, Intel will launch its high-speed Willamette processor this summer, and that should take some wind out of the Athlon's sails.
analyst Dan Niles isn't worried. In the past, Intel fought off AMD by dropping prices and bringing out faster chips. But now AMD has products on the same speed level as Intel, and upcoming versions of the Athlon should keep pace with even the Willamette. "Intel will cut prices and so will AMD, and so you are right back to where you started," says Niles, who has a buy rating on the stock. (Robertson Stephens is not an underwriter for AMD.)
He predicts the companies have reached a new era of mutually profitable coexistence. He urges investors to buy shares of both companies. "How many industries have only one guy in them?" he says. "Why can't you have two guys selling processors?"
And that is what Sanders has been telling the Street for years.