What they're saying

Electronic News, Oct 26, 1992 by Jonathan Cassell

Even though Advanced Micro Devices has disclosed plans to ship a 486 processor with Intel microcode before year-end (EN, Oct. 19), its schedule could yet be disrupted by an adverse ruling from the judge presiding over the protracted licensing dispute with Intel. Analysts, as a result, differ in their views of AMD's near-term prospects.

"We've always been generally positive on AMD and we always thought they would ship a 486, whether it was an Intel microcode version or their own clean room version," said Larry Borgman of Labe & Co. "They're talking about shipping in the first quarter (of 1993). We thought it would be the third quarter before. Obviously, if you ship earlier, it's even more positive."

Mr. Borgman said he expects AMD's sales of 486s to more than make up for an expected drop in demand for 386s next year. AMD will sell $500 million worth of 386s this year, but only $300 million in 1993 as the computer industry moves to 486s, he predicted. However, he said AMD's sales of 486s should reach $250 million in 1993.

His positive assessment was also influenced by the company's success in flash memory, whose sales he predicted would increase to $110 million in 1993, up from an expected $46 million for 1992. Despite the rise in flash revenue, AMD's move to the 486 will have an impact on earnings next year, Mr. Borgman said. Earnings per share will fall to $1.90 next year, down from $2.40 this year, he said.

AMD is on track for record revenues and profits this year, reporting sales of $357 million for the third quarter, a 23 percent increase over last year's third quarter (EN, Oct. 12). Net income was $49 million, a 188 percent increase over the $17 million recorded in the third quarter of 1991.

Taking a more bearish view of AMD's fortunes was John Lazlo, senior technology analyst for Paine Webber: "My recommendation on AMD is neutral, in line with the market."

Though the latest legal round was won by AMD, when the court decided a negative microcode ruling applied only to the company's 80C287 co-processor and not to the Am486 (EN, Oct. 12), Mr. Lazlo said the still-unresolved court case creates doubts for investors. "Investors hate uncertainty; that's why the stock is so cheap. They're concerned about legal issues and the legal liability they shoulder if AMD loses the case," he added.

Mr. Lazlo predicted AMD's per share earnings will be $1.75 for 1993, down from $2.48 for this year. AMD's stock performed well in the week following the judge's ruling, rising to $13 per share on Oct. 16, up from $11.88 on Oct. 9.

As an aside to the AMD legal matter, as well as to litigation involving Cyrix, was Intel's disclosure last week that its new 32-bit microprocessor (due Q1 of 1993) is called Pentium. Intel president and CEO Andrew Grove told press, analysts and PC users in New York the name was selected in order to have a legally protectable trademark for itself and OEM partners, having lost to public domain the chain of 286, 386 and 486 monikers. Under the old Intel branding, the Pentium might have become the 586, although Intel has only used the code name P5 for the device.