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Alex Cho

AMD Earnings Review: Pacific Crest Updates Clients With Channel Commentary

Michael McConnell from Pacific Crest Securities made some insightful commentary in his earnings themed research note, which was released to clients of the firm just today. He maintained his Sector Weight rating, but that wasn’t what was important. 

His channel commentary was what made this report unique, and quite frankly, it was the most insightful report we have seen from the consensus so far.

Here were the key highlights from his report:

Supply-chain conversations remain consistent that AMD, rather than ARM, has a better chance for customer share gains versus Intel this year. The server supply chain noted that early evaluations indicate AMD’s Naples server processor has good performance and is stable, with Taiwanese server ODMs actively touting Naples as a viable second source to Intel at enterprise and cloud customers. The server supply chain expects Zen to start shipping in volume to customers starting in late 2Q17, and noted the possibility for a few points of share gain for AMD this year. In terms of model sensitivity outlined below, we estimate every 1 point of server processor market share gain for AMD equates to $0.07 of incremental EPS to our model.

On a positive note, channel and PC OEM commentary on AMD’s new Ryzen desktop processors was constructive over the past two weeks, with regional interest and market response characterized as high, particularly for the mainstream segment and from Lenovo. Impressive multi-threading performance and attractive price points ($329 to $499) are expected to lead to gradual share gains for AMD this year into 2018. The lone concern in the supply chain remains AMD’s ability to adequately meet demand, as the company has yet to commit to supply at several supply-chain companies that we spoke with. We note that AMD’s desktop processor unit share declined to 8.3% in 4Q16 from a high of 19.6% in 4Q13. In terms of model sensitivity outlined below, we estimate every 1 point of desktop processor market share gain for AMD equates to $0.16 of incremental EPS to our model.

Michael’s channel checks suggest AMD’s supply constrained, as opposed to end market demand being weak. This is supportive of our bullish narrative, and it’s why I’m also a huge fan of Michael’s work. Each percentage share gain significantly impacts our financial model, and it’s why we’re much higher than consensus estimates currently, which we detail here.

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