Intel: ThinkEquity Sees Potential, Avian Sees Risk

ThinkEquity’s Sujeeva De Silva and Avian Securities’s Arnab Chanda take differing tacks on Intel (INTC) this morning, the former trumpeting Intel’s prospective growth, the latter initiating coverage with a Neutral rating and a cautious stance.

De Silva, who maintains a Buy rating on Intel shares and a $30 price target, writes that recent meetings with management and investors suggests to him that the areas of strength, including data center, embedded technology, and emerging market PC sales can offset a slowdown in the mature PC markets.

And investors underestimate the company’s prospects in mobile chip sales for smartphones and such:

We believe that Intel’s efforts in mobile are being underestimated, and expect rapid product cadence over the next three years to improve the company’s position versus competitors relying on trailing edge foundries, and address concerns about tablet/smartphone cannibalization of the company’s PC franchise. We expect 1Q12 to be the bottom for Intel, with easing hard drive constraints and steady improvement driven by data center, emerging market PC growth and embedded.

De Silva estimates $56.2 billion in revenue this year and $2.45 per share in profit. That is below the average $56.76 billion Street consensus for revenue but in line with Street GAAP EPS estimates. But De Silva thinks that Intel can deliver double-digit growth further out.

Chanda, on the other hand, with a $29 price target, writes that the main issue is not what Intel is doing right, but what happens with arch-rival ARM Holdings (ARMH).

He thinks ARM will increase its presence in notebooks and servers, Intel’s principal areas of success:

We believe that the key to Intel’s future success is not whether Intel succeeds in mobile, but whether ARM succeeds in computing. Given the dramatic ASP differences between Intel’s core notebook CPUs (5x) vs handset/tablet application processors, Intel’s future revenue growth will be predicated much more on maintaining share in notebooks/servers. We expect that WoA will drive ARM into Windows8 tablets and low-power notebooks in late Q4:12, with the possibility of gaining server share in C13/14 since multiple players (Calxeda, NVDA, AMCC, CAVM) are developing 32/64-bit ARM based server CPUs.

In somewhat related news, The Wall Street Journal’s Benn Rooney this morning pens an overview of Intel’s efforts in the smartphone chip market, quoting CEO Paul Otellini about how the company’s first priority in recent years was beating back Advanced Micro Devices (AMD) in the server market, not developing mobile.

As Otellini explained to the Journal, the battle for mobile processors is “a marathon, not a sprint,” and Intel intends to be a contender by an approach that is “steady and sure.”

Intel shares today are down 13 cents, or half a point, at $26.94.

Freescale: RBC Ups to Buy on De-levering Prospects

Shares of Freescale Semiconductor (FSL) are up 10 cents, or 0.7%, at $15.13, after RBC Capital Markets’s Doug Freedman raised his rating on the shares to Outperform from Sector Perform, and raised his price target to $20 from $15, writing that the company is “a play on 2013 earnings power” given its highly leveraged business model.

Mind you, there are a bunch of negatives in this story.

Probably, Street estimates will fall after the company reports Q1 results, expected on April 19th: He’s modeling $962.4 million and a 7-cent loss, which is below the Street consensus of $962.6 million and a 4-cent loss.

Moreover, he sees sub-par growth in revenue for Freescale — 7.6% growth next year versus semiconductor average growth of 7.9%. And he assumes the company has gross margin below its own 53-55% long-term target, at 44.7% this year and 47.7% next year.

But on the plus-side, he sees the company de-levering its massive debt pile in coming years, which would decrease its coupon on the remaining debt, thus boosting earnings per share:

We assume a declining Debt to EBITDA from 7.2x in 2012, to 5.7x in 2013, and 5.0x in 2014. Freescale is likely to deliver a favourable 60% fall-through on incremental revenue while paying a cash tax rate of $20 million for the next four years, which should help Freescale de-lever. The exhibit below suggests that each 1% reduction in interest rate impacts EPS by roughly $0.24 […] We currently model interest expense at $514 million in 2012, $476 million in 2013 and $410 million in 2014, with an effective interest rate between 7.4-7.9%. Our model forecasts debt reduction of $108 million in 2012 and $600 million in 2013. As our prior sensitivity analysis suggests, any incremental upside via re-financing or accelerating debt re-purchase would likely result in significant upside.”


Skyworks: UBS, Davidson Up Targets on iPhone, Galaxy Prospects

Shares of wireless chip maker Skyworks Solutions (SWKS) are up 16 cents, or 0.6%, at $26.93, helped by some positive remarks from the Street in relation to Apple’s (AAPL) iPad announcement on Wednesday and prospects at customer Samsung Electronics’s (005930KS).

UBS Securities’s Parag Agarwal, who has a Buy rating on Skyworks shares, this morning raised his price target to $33 from $28, writing that recent meetings he attended with management lead him to the conclusion that Skyworks stands to gain chip content in the new model of the iPad, and in an “iPhone 5,” whenever it is introduced.

“While it is generally believed that SWKS should win LTE sockets, we would not be surprised to see incremental content beyond LTE sockets” at Apple, writes Agarwal, referring to the “long term evolution,” or LTE, cellular standard.

Skyworks has also won two thirds of the business for Samsung’s various phones and tablets, including the forthcoming “Galaxy S III,” he believes.

D.A. Davidson’s Aalok Shah, who has a Buy rating on the shares as well, raised his price target to $32 from $27, writing that he, too, believes Skyworks won business in the Galaxy S III. He also thinks the company will be the most adept at selling chips into phones that use Qualcomm’s (QCOM) “MSM8960” chipset. The company should have prominence in both the cellular and WiFi-only versions of the new iPad, he believes.

Shah sees the company’s chips gobbling up more of the parts in each smartphone, “including antennae switches (~$0.80- $1.00), GPS LNA [low-noise amplifier] (~$0.40), wireless LAN ($0.50-$1.00), lighting and display ($0.50-$0.75), and switches (~$0.40).”

Shah says recent talk of general problems with chip production in 28-nanometer features at fab partner Taiwan Semiconductor Manufacturing (TSM) are a “point of concern,” but “even if true, the impact on Skyworks will not be substantial.”


CAVM: Jefferies Ups to Buy on Micro-Base Station Prospects

Shares of chip maker Cavium (CAVM) are up 70 cents, or 2%, at $33.40 after Jefferies & Co. analyst Dundeep Bajikar raised his rating on the stock to Buy from Hold with a $44 price target, up from $32, writing that the company may benefit from the roll-out of wireless base station equipment that’s cheaper and simpler, to serve the expansion of both 3G cellular networks and emerging networks based on “long term evolution,” or LTE.

Conversations last week at the Mobile World Congress in Barcelona, Spain, with equipment vendors Huawei Technology (002502CN), ZTE (0763HK), privately held Aricent Group, and RadiSys (RSYS) suggest to him that today’s base stations are dropping dramatically in price, now costing $10,000 to $20,000 on average, down from $40,000 in past.

Those systems will need to use cheaper “application-specific standard products,” or ASSPs, like the kind Cavium offers rather than traditional field-programmable gate arrays (FPGA), as they have typically to date, to save costs, writes Bajikar.

These systems should ship in volume in 2014, he writes, but Cavium is expected to start producing its chips for the systems next quarter. That could be a $400 million per year opportunity, he thinks. Competitors include Texas Instruments (TXN) and Freescale Semiconductor (FSL).

Cavium also is getting business from Huawei for corporate routers and switches, Bajikar believes, based on his “checks.”

For this year, he models EPS of 80 cents, and for 2013, he models EPS of $1.46. That is higher than the consensus of 66 cents and $1.20, respectively.


TI: Amazon, Nokia, RIM Seen at Fault; Bulls Say Ride the Recovery

Shares of Texas Instruments (TXN) are down 27 cents, or 0.8%, at $32.33 after the company last night cut its outlook for the current quarter, warning of weakness in demand among some users of its “OMAP” application processor.

TI said the shortfall had come from not just one customer, but that some customers re-evaluating their level of production of wireless devices had caused them to ratchet back chip orders following Q4.

This morning, most everyone has a theory on which customers and which gadgets those might be. Not everyone agrees it was (AMZN), with its “Kindle Fire,” but Amazon’s name is coming up quite a bit in multiple reports.

The bulls are inclined to stick with TI’s stock to ride what still appears to be a semi market that is hitting bottom and poised for a rebound. Others suggest alternative semi names with an easier path:

John Pitzer, Credit Suisse: Reiterates an Outperform rating and a $40 price target, writing that he suspects the weakness is at Samsung Electronics (005930KS), with its “Galaxy S II” phone and “Galaxy Nexus” phone, Research in Motion (RIMM), and Nokia (NOK). But he’s inclined to hang in there for the turnaround, writing, “While not ideal, we continue to view the industry as being in a bottoming process with a resumption of growth in the C2Q. For TXN, new product ramps at AMZN should add incremental growth in the NT, and LT we still view the company as a share gainer in one of the best sub-segments of semis (Analog/Embedded) with LT earnings power of $4.00.”

Michael McConnell, Pacific Crest: Reiterates an Outperform rating, and a $40 price target, writing that “Customer rationalization of demand and inventory, we believe from a single, new customer, caused a shortfall in OMAP after a strong Q4— estimated to be up 40% sequentially—which benefitted from customers building in prepa- ration for product launches.” With other trends improving for TI, he’s inclined to stay the course.

J. Steven Smigle, Raymond James: Reiterates an Outperform rating and a $38 price target. He thinks it’s mostly about Nokia: “We think a good portion of the softness is also related to customer-specific performance, most notably Nokia, with some seasonal headwinds also being a factor.” But Smigle is inclined to hope for better things down the road: “This said, we remain optimistic on the potential for TI’s Wireless businesses and think the next 12 months will bring signs that TI is succeeding in penetrating adjacent markets with its applications processors.”

Bobby Burleson, Canaccord Genuity: Reiterates a Hold rating and cuts his price target to $32 from $34. “We remain concerned that TXN could lose apps processor share in tablets in coming quarters as Amazon introduces updated models mid year,” writes Burleson. He advises taking advantage of the “looming semiconductor recovery beginning in Q2″ by instead buying shares of Analog Devices (ADI), Fairchild Semiconductor International (FCS), and Intersil (ISIL).

Craig Berger, FBR Capital Markets: Reiterates a Market Perform rating and a $28 price target. He sees multiple culprits in the wireless shortfall: “We note that TI had OMAP application processor goodness in 4Q11 in the Samsung Galaxy Nexus and S2, Motorola Droid Bionic, Amazon Kindle Fire, and Barnes & Noble Nook, with 1Q12 sales seasonally falling and chip/device inventory reduction activities also weighing.” Berger advises looking to other semis to ride the recovery, including ON Semiconductor (ONNN), Maxim Integrated Products (MXIM), and Qualcomm (QCOM).

TXN Cuts Q4 on OMAP Shortfall: Kindle Fire? Smartphones?

Shares of Texas Instruments (TXN) are down 68 cents, or 2%, at $31.90 in late trading after the company this afternoon cut its revenue and profit outlook for this quarter, citing reduced demand for wireless products.

For the three months ending this month, the company sees revenue in a range of $2.99 billion to $3.11 billion, down from a prior range of $3.02 billion to $3.28 billion.

Profit per share is seen in a range of 15 cents to 19 cents, down from a prior forecast of 16 cents to 24 cents on a GAAP basis.

That is below the $3.16 billion and 21 cents estimate the Street has been modeling.

TI offered no details, but will be hosting a conference call to discuss the new outlook at 5 pm, Eastern time. You can catch the webcast of it here.

Update: During the conference call, TI’s head of investor relations, Ron Slaymaker, remarked that everything about the company’s business was proceeding as expected with the exception of the wireless business, which makes up about 10% of total revenue.

Slaymaker said that while revenue had been expected to fall from Q4′s level, which was boosted by new product introductions, nevertheless, demand for the company’s application processor, the “OMAP” family, was falling short of expectations:

As you will recall from our January release, we had strong growth in OMAP in the fourth quarter, and that was really as we benefited from new product introductions across multiple customers and as you know, whenever there’s a new product introduction by a customer, there’s also an associated one-time surge of revenue as those customers fill their channels with product. So although we had anticipated lower sequential revenue associated with that [non-recurrence] of the fourth quarter channel fill, demand for OMAP is lower than what we had originally expected as our customers are now rationalizing both their expectations for ongoing demand as well as the associated inventory.

Slaymaker was pressed by analysts as to whether application processor sales were weak at a specific customer. Slaymaker said it wasn’t just about a single customer, but he also said some OMAP customers have adjusted their expectations for new products:

You know it’s very typical for coming out of the holiday season that you see inventory adjustments based upon the results during the holiday season compared to those customers expectations, and it’s probably amplified a bit in terms of that adjustment when you have a lot of new products that are being introduced by those customers because they don’t have a real clear record or a history of what sales will look like, so they build inventory, they hope for the best and then in first quarter they make the adjustments based upon actual results, so that certainly is part of it and then I think part of it also is based upon that history now they’re making some assessment of what demand for those products will look like on an ongoing basis and how much inventory they need to support that level of demand, so all of that is blending together to result in the adjustment that we’re seeing.

Among the more prominent new devices out in the holiday quarter was‘s (AMZN) “Kindle Fire” tablet, for which TI’s OMAP is believed to be the processor. It’s not clear from Slaymaker’s response whether the Fire might have contributed to the shortfall, or if it was some other product entirely, such as a smartphone using the chip.

Slaymaker said that the company’s baseband chip business would be lower by about $200 milion this quarter, but that the decline was as expected, and did not figure into tonight’s revision to forecast.

Wireless revenue will fall about $100 million short of the company’s prior expecations, said Slaymaker.

Slaymaker said there was also a smaller decline in its chips for wireless “connectivity,” and that the shortfall was the result of weakness at a handful of vendors: “We do have a couple of customers that make up a significant amount of our connectivity business that have seen their business decline.”

Asked whether the lost OMAP revenue would bounce back to Q4′s level, Slaymaker said no, because the customers who cut expectations would first have to deal with inventory reductions.

Despite the shortfall in wireless, Slaymaker said that the company still believed that the chip business overall was hitting bottom this quarter and will improve through the rest of the year.

TI shares have recouped much of their after-hours loss and are down now only a penny at $32.59.


QCOM, AVGO to Benefit from iPad ‘LTE’ Support

Some of the Street’s semiconductor analysts today weighed in with their thoughts on the benefits to the semiconductor industry of Apple‘s (AAPL) new iPad, unveiled yesterday.

Barclays Capital‘s wireless semiconductor analyst Blayne Curtis today reiterates an Overweight rating on shares of Avago Technologies (AVGO), which should benefit from the iPad’s use of “long term evolution,” or LTE, wireless technology should be a boon for the company:

The “new iPads” will now come in two LTE versions. The VZ version supports both CDMA and WCDMA (Bands 1/2/5/8) plus one LTE band (Band 13), while the AT&T version adds two LTE bands (Bands 4 & 17) – each band adding ~$1 in additional RF content. We look for more color when the first device teardowns appear around the launch (March 16), but our initial view is this change is incrementally positive for AVGO as we see them well positioned to secure a good portion of the RF content including the LTE bands and potentially some of the 3G content including the FBAR from essentially zero in the iPad2.

A couple of different reports trumpeted the advantages for Qualcomm (QCOM), which makes baseband processors for LTE.

ThinkEquity‘s Mark McKechnie reiterated a Buy rating on the shares and an $85 price target, writing that the LTE capabilities may push more units of the iPad this time around with wide-area wireless links built in, which is good for the baseband “attach rate,” which is good for Qualcomm.

Of the company’s likely supplier role, he writes:

QCOM is the likely baseband chip supplier — we estimate ~ $16 of content for QCOM at ~ 30% operating margins drives $4-$5 of chip operating profits per 4G iPad for QCOM More importantly, we estimate ~$10-$15 of royalty income for QCOM for every 4G iPad based on a 5% royalty rate on a $300 build price for the iPad3.

FBR Capital‘s Craig Berger reiterated an Outperform rating on Qualcomm shares, and a $77 price target, writing that “Apple’s new iPad includes LTE cellular chipsets from Qualcomm (in cellular models), with the market only partially discounting the use of these higher ASP [average selling price] basebands.”

Berger estimates that if Apple sells 65 million iPads this calendar year, and if 40% of those units have cellular connections, “assuming a $25 baseband average selling price for Qualcomm, the iPad could generate $650 million in incremental revenues and $0.10-$0.15 of EPS” for the year.

On a related note, B.Riley & Co. chip analyst Mike Crawford today reiterated a Buy rating on shares of Silicon Motion Technology (SIMO), noting that the company may benefit from further sales of its 4G chip to Samsung Electronics (005930KS), which has already used the part in several phones.

He thinks Samsung likes nurturing SIMO in order not to be beholden to Qualcomm:

Meanwhile, as we see it, the bear story is focused primarily on just one part of SIMO’s growing business—the fact that it is selling $5 parts to Samsung for its latest (4G) phones.  After a two-year collaboration with Samsung, SIMO’s FCI subsidiary developed a LTE transceiver that Samsung put in six LTE handsets… and SIMO subsequently has announced five more design wins with Samsung.  As for catalysts—keeping in mind that Samsung sold 20MM Galaxy S II’s in ten months—one of the biggest would be for one of those Samsung design wins to in fact be the Galaxy S III quad core (with Exynos 4) to be rolled out in 50 markets come the April/May timeframe.

AMD: Little Interest in ARM for Clients, Says Wells

Wells Fargo’s David Wong today reiterates an Outperform rating on shares of Advanced Micro Devices (AMD), and an $8 to $10 “valuation range,” while throwing cold water on the notion the company may license chip designs from ARM Holdings (ARMH) for client computing devices.

Wong attended a series of investor meetings with AMD management in Boston recently, he writes, and what he observed was some interest in ARM chips for servers, not for PCs or tablets:

AMD said that it sees no advantage in the ARM architecture compared to the x86 architecture in the client (notebook and desktop) PC space. The company is not currently working on any ARM-processor designs for PCs. However, AMD does think there could be some advantages in the ARM architecture for some server applications. The company is not discussing whether it currently has any effort underway to develop ARM-based server chips but did note that for ARM processors to achieve traction in the server space the processors would have to be 64-bit processors. AMD does not expect there to be 64-bit ARM solutions widely available till 2014 or 2015.

Wong observes that the company’s purchase of server startup SeaMicro, announced last week, will lead to sales of the company’s “Opteron” microprocessor in servers in the latter half of this year. The company will follow that next year with “low-cost CPU and GPU cores” for servers, which Wong speculates will be “presumably the successors to the current Brazos chips.”

AMD shares today are UP 32 cents, or almost 5%, at $7.49.


Broadcom Chip Could Displace TI in ‘Kindle Fire,’ Says Lazard

Earlier today, Lazard Capital Markets chip analyst Daniel Amir opined that (AMZN) may decide to use Broadcom‘s (BRCM) wireless networking processor in the next version of its “Kindle Fire” tablet computer, displacing the part from Texas Instruments (TXN) currently used in the device. TI reportedly also supplies the application processor for the Fire.

Amir sees Amazon using the Broadcom part in a 10-inch Kindle Fire that he suspects may be unveiled next quarter. If so, it could add $30 million in revenue for Broadcom this year “and further better position the company in the tablet market.”

Amir has a Buy rating on Broadcom shares and a $45 price target.

Broadcom shares today rose $1, or 3%, to $35.16, while TI shares rose 53 cents, or 1.7%, to $32.65.


Intel Should See ‘Romley’ Advantages This Q, Says Wells

Intel (INTC) this morning formally unveiled its long-awaited “Romley” server microprocessor family, dubbed the “Xeon processor E5-2600,” consisting of 17 different models, including some with as many as eight processor cores, and ranging in cost from $198 to $2,050.

Intel said the power and energy efficiency of the processors make them especially well suited to the task of “cloud computing,” and a slew of companies offered their own announcements in support of the product line, including Dell (DELL), NEC (6701JP), SGI (SGI), and Hitachi (6501JP).

Wells Fargo‘s David Wong, who maintains an Outperform rating on Intel shares, and a $30 to $36 “valuation range,” believes the company has proven a technology edge over Advanced Micro Devices (AMD):

For Romley, Intel quoted a third party score of 492 for the SPEC floating point benchmark, up from a prior 271, which gives Romley a clear performance lead over AMD’s Bulldozer-based server chips, admittedly though at a higher price. We are impressed by the increase in Intel’s floating point score as we think it shows Intel does indeed receive a benefit from its Advanced Vector Extension (AVX) instruction set.

Wong believes the raft of press releases from the partners suggests Intel can see advantages this quarter from pent-up demand:

We believe that the Romley launch today for enterprise servers was originally expected towards the end of September 2011 and suspect some pent up demand exists for Romley-based servers. We are hopeful that the ramp of Romley will drive both unit shipment growth and ASP growth for Intel’s server processors over the next few months.

Intel shares today bucked the drop in the Nasdaq, rising 7 cents to $26.61.


Cypress Cuts Q1 View; Reiterates This is the Trough

Shares of chip maker Cypress Semiconductor (CY) were halted this afternoon, and are now down 50 cents, or 3%, at $15.51 after the company cut its outlook for the fiscal Q1 ending in March, citing order cuts from customers in wired networking products and mobile phones.

The company expects Q1 revenue in a range of $180 million to $190 million, which is down from the $200 million to $220 million the company forecast when it reported Q4 results on January 26th.

The company expects EPS in a range of 8 cents to 11 cents per share.

The Street has been modeling $206 million and 16 cents a share.

CFO Brad Buss remarked that “”We have recently seen some order decreases, mostly in certain wire line and handset customers. In addition we are seeing weaker than expected revenues from our distribution channel, mainly due to lower turns business in Europe and Asia.”

Buss said the company had also seen backlog and bookings “stabilize” in January and improve “in the last six weeks.”

Buss reiterated the company’s view that “Q1 will be the bottom for revenue and bookings,” and said Q2′s revenue would increase from Q1′s level.

“However the macro environment and order patterns remain very fluid and lead-times are near historical lows, impacting visibility,” he added.


Qualcomm Slips: Ups Dividend, New $4B Repurchase Plan

Shares of Qualcomm (QCOM) are down 56 cents, or 0.9%, at $61.55, after the company, which is hosting its annual shareholder meeting at its headquarters in San Diego, this morning raised its quarterly dividend by 16% to 25 cents a share per quarter from 21 cents, and said its board approved a new $4 billion share buyback program.

The new dividend rate becomes payable after March 23rd, the company said. The new buyback program replaces a remaining $948 million allotment of a prior $3 billion plan.

Qualcomm noted it has “returned $16.8 billion to stockholders” through combination of repurchases and dividends since 2003.

In one bit of instant analysis out this morning, Morgan Keegan‘s Tavis McCourt raised his EPS estimates for this fiscal year ending in September, and next year: he now sees $3.73 per share in profit this year, up from a $3.72 estimate previously, and $4.01 next fiscal year, up from a prior $3.98 estimate.

McCourt also raised his price target to $69 from $67.


OVTI: Baird Says Buy on iPad 3, iPad ‘Mini’ Involvement

Shares of camera sensor maker OmniVision Technologies (OVTI) are up 99 cents, or 6%, at $16.83 this morning after R.W. Baird & Co.’s Tristan Gerra raise his rating on the shares to Outperform from Neutral with a $23 price target, up from $19 previously, writing that the company may be producing the 5 megapixel sensor that will turn up in the next iPad model, and may be included in an iPad “Mini” model.

Apple is widely expected to unveil a new iPad tomorrow, which Gerra refers to as the iPad 3. OmniVision may be getting $3.20 per iPad unit, he estimates based on his “field research” which “supports our belief Omnivision is supplying a 5mp sensor for the rear camera and a 1mp sensor for the front camera of the iPad3.”

Although Sony (SNE) may maintain is slot in an “iPhone 5” later this year, supplying the main camera sensor for the back of the device, Gerra expects iPad units can make up the difference for OmniVision. The company may also “aggressively position itself as a potential second source” for the iPhone.

In the meantime, “Our field research also leads us to believe OmniVision is designed into an upcoming iPad mini, which we believe will feature two 1mp sensors front and back, for an estimated total content of about $1.60.”

Gerra is estimating $1.16 per share in profit this fiscal year ending next month, and $1.55 per share for next fiscal year. That is well below consensus for this year, which is modeling $1.55, but ahead of consensus next year, which mis modeling just $1.35 per share. Gerra sees $884 million in revenue this year, slightly ahead of consensus $882 million, but $1.023 billion next year, well ahead of the consensus $915 million.

Update: In iPad-related news, Seth Weintraub of 9to5Mac this morning writes that sources at an Apple store that have been reliable in past are telling him that the iPad will be available on March 16th.


AMD: Street Says GlobalFoundries ‘Divorce’ Encouraging

Street response has been trickling in to Advanced Micro Devices’s (AMD) announcement this morning that divested its remaining stake in its chip manufacturing partner, GlobalFoundries, and said it negotiated new terms for how much it will pay the latter for chips.

The agreements will result in a $703 million charge to AMD’s first quarter results, which are to be reported in full on April 19th, the company said.

The new agreement is for “negotiated wafer pricing,” instead of the prior arrangement whereby AMD paid GlobalFoundries for each “good die” produced by the latter.

AMD will pay GlobalFoundries $1.5 billion this year, up from $904 million last year, said CFO Thomas Seifert in a conference call this morning. The company said it’s outlook for gross margin remained unchanged.

Patrick Wong with Wells Fargo this morning writes that the conclusion of talks with GlobalFoundries is a positive for AMD: “We think it is good that AMD has managed to move to a wafer pricing agreement and still achieve reasonable profitability even with substandard yields in the near term.”

Wong, who has an Outperform rating on AMD and an $8 to $10 “valuation range,” thinks it’s “unfortunate” that AMD had to pay Global in cash, up front, but the good side of divesting from the supplier is that AMD has more options for where it can get its chips tabbed:

Possibly AMD will consider making some of its next generation APUs at Taiwan Semiconductor (TSM). However, the arrangement involves a cash payment of $425 million to Globalfoundries, to be paid over the next five quarters, and AMD will take a $703 million charge in the March 2012 quarter. We think it is unfortunate that AMD has had to make a cash payment to Globalfoundries, on top of the recently announced acquisition of SeaMicro which involves $281 million in cash. However, it appears that the original agreement which this new agreement replaces included a comparable cash payment, of $430 million, and so the ultimate impact on AMD’s balance sheet may be similar to what it would have been under the old agreement .

Wong cut his Q1 estimate to a loss of 82 cents a share from a prior 7-cent profit estimate, to account for the $703 million charge. As such, his 2012 full-year estimate goes to a loss of 35 cents from a prior 54-cent profit.

Oppenheimer & Co.’s Rick Schafer, who has a “Perform” rating on the shares, writes the deal is “a net-positive as the move to a take-or-pay wafer agreement, from good die pricing, positions AMD to better capitalize upon yield improvements throughout the year.”

Like Wong, he thinks, “The company can also now dual-source certain 28nm APU products from TSMC.”

Schafer is “leaving our pro-forma estimates unchanged” regarding the one-time charge.

And Stacy Rasgon with Bernstein Research reiterated an Outperform rating and a $10 price target, writing that it’s “like a divorce:” Perhaps the cash payment should be thought of as something like a divorce settlement – in return for payment AMD is shedding ownership, oversight, but also exclusivity requirements to GlobalFoundries.

ANd while the “cash outflow” of $425 million “is significant,” it is good that AMD has “bought” something in return for a payment for which it was already on the hook — namely, manufacturing flexibility.”

“The new WSA [wafer supply agreement] should help to calm some of the longer term concerns over AMD’s product roadmap and single-source dependency for 28nm process technology,” writes Rasgon.

AMD’s liquidity situation actually looks just fine, writes Rasgon:

While the company does have some cash outflow this year ($281M for SeaMicro, $250M for the new WSA settlement, and ~$500M in debt coming due in August), the company should be able to maintain cash reserves at an appropriate level. We see this as another example of how the company’s improved financial performance is allowing a degree of flexibility that would have been unheard of in prior years.

Rasgon left his estimates unchanged for this year.

AMD shares are down 33 cents, or 4.4%, at $7.12.

Chips: JP Morgan Sees Favorable Widening of Lead Times

JP Morgan chip analyst Christopher Danely this morning writes that bookings and backlog are both “on the rise” for semiconductor firms, based on his “channel checks,” which should be good for the group, especially those he rates Overweight, which include Texas Instruments (TXN), Xilinx (XLNX), ON Semiconductor (ONNN), and Analog Devices (ADI).

The auto market is the strongest market for chips, based on his checks, while the industrial and PC markets are improving, he writes.

“Our checks also indicate lead times should extend over the summer if business conditions continue to improve—a positive catalyst for semiconductor stocks,” he writes.

Altera’s (ALTR) business may not be as strong as Xilinx’s, he writes, given that the Asian market for chips within the telecom sector appears to be the weakest geographic region within a telecom market that is weak overall:

Aside from the Apple and Samsung food chain, demand from the wireless handset end market appears weak. The wired and wireless telecom end market appears to be the weakest. Within telecom, North America appears to be recovering while Asia appears to be the weakest.

Semiconductor stocks are broadly lower today, with TI shares down 40 cents, or 1%, at $32.42, Altera off 44 cents, or 1%, at $36.74, ON Semi down 18 cents, or 2%, at $8.56, Xilinx off 62 cents, or 1.7%, at $35.86, and Analog Devices down 39 cents, or 1%, at $38.27.


AMD: Street Cheers SeaMicro Deal

A slew of reports were put out today congratulating Advanced Micro Devices (AMD) on its decision to acquire Silicon Valley startup SeaMicro, a maker of technology for small, efficient servers called “micro-servers,” for $334 million, announced last night.

The deal, as I noted in an interview last night with AMD executives, portends all kinds of scenarios for how AMD can expand its chip offerings, and expand its technology for systems architecture. The deal is not expected to add to AMD earnings until sometime after this year.

The Street seemed to like the deal: AMD shares rose 16 cents, or 2%, at $7.51.

And the analysts, bull and bear alike, seem unanimous in their approval.

Joanne Feeney with Longbow Research reiterated a Buy rating on AMD shares and a $10 price target, writing that the deal is a positive since “the acquisition places it [AMD] at the center of the fastest growing segment of the server market: cloud computing.”

AMD may be able to increase its total addressable market for chips, its growth rates, and its margins, she believes.

“Future technology development will likely involve integrating SeaMicro technology with CPUs from a variety of sources,” writes Feeney, “and AMD needs to own the company, rather than just partner with it, to push that innovation.”

Nomura Equity Research‘s Romit Shah reiterated a Neutral rating on AMD shares, and a $5 price target, writing that the deal won’t likely boost AMD’s 10% share of server microprocessors “in a meaningful way,” but that nevertheless, “we view this acquisition as incrementally positive for AMD as it will allow AMD to showcase its datacenter-centric server architecture in a platform with established, albeit small, customer-base of SeaMicro.”

Patrick Wang of Evercore Partners reiterated an Equal Weight rating on AMD shares and a $6 price target.

Wang thinks this is a “strategic move” that strengthens the company’s competitive position with the addition of intellectual property pertaining to SeaMicro’s “fabric” for connecting components, and has the added benefit of giving AMD another distribution channel for its chips.

Rick Schafer of Oppenheimer & Co. reiterated a “Perform” rating on AMD shares, writing that the deal “presents a potential threat to INTC’s server dominance while upping the competitive ante vs. fellow ARM-based server players.”

However, Schafer also thinks it could put AMD “at odds with its server OEM customers at least near term” given how the SeaMicro offering makes older server gear out of step with the future (though in my piece last night, I noted that AMD was at pains to say they intend not to compete with their customers):

Web hosting, cloud services and social media are transforming workloads from single-thread, heavy workloads to millions of smaller computational workloads. Raw horsepower isn’t needed; efficiency is. SeaMicro not only meets the needs for a more efficient server, it also maximizes total CPU as a percentage of total system cost. We view SeaMicro as a competitor to Dell/HP/IBM due to its power-optimized framework. And also to silicon vendors that would otherwise reduce total system power through a SoC. This pits AMD at odds with both. Whether AMD will sell SeaMicro servers and not simply bundle IP is as yet unclear.

And Sandy Harrison with Wunderlich Securities, who follows chip maker Applied Micro Circuits (AMCC), which is also trying to sell server chips, but based on technology from ARM Holdings (ARMH), writes that the deal is an “endorsement of the growth and value of disruptive technology to the cloud data center server market.”

Harrison thinks larger chip makers may “recognize AMCC as an attractive target” to quickly ramp up offerings for micro-servers.

Harrison maintains a Buy rating on Applied Micro shares, and an $8 price target.

AMCC stock closed up 8 cents, or 1%, today at $6.86.

AMD: SeaMicro Deal Suggests Radical Processor Intentions

Executives from Advanced Micro Devices (AMD) were kind enough to spend some time tonight discussing their intentions for the $334 million acquisition of Silicon Valley startup SeaMicro, announced this evening.

SeaMicro makes servers for data centers that combined hundreds of different processors along with networking and storage and memory and a special “fabric,” a means to tie together those multiple processors and get them to perform in concert.

What ultimately becomes clear is that AMD’s intentions for selling a myriad of processor types and combinations could be very radical in the world of chip makers.

Lisa Su, AMD’s head of products, clarified that the company is in no way looking to compete with its server customers, including Hewlett-Packard (HPQ). Rather, “this acquisition for us is about getting leading-edge into our portfolio, and having server and system-level talent that are very valuable.”

“Our goal is not to complete with our customers,” she added. “Our OEM customers will be able to add their software and system capabilities, which are really their special sauce, on top of what we do.”

Su said AMD had looked around for awhile for the kinds of “micro-server” product line that SeaMicro develops. The company consistently came to the top of the list in AMD’s inquiries, said Su.

SeaMicro CEO Andrew Feldman, who will become an AMD executive, said that SeaMicro had distinguished itself from other vendors of micro-server technology, including Calxeda (which is working with HP), and chip maker Applied Micro Circuits (AMCC), in that the company has been delivering product “for more than 18 months, this isn’t PowerPoint. We have thousands of servers deployed, millions of hours of production deployments.”

Feldman said customers using the SeaMicro micro-servers were getting, on average, 12 times the throughput on compute operations while using only a quarter of the power of other servers and only a sixth of the total rack space as other servers, for comparable work loads.

I asked both executives how many different types of chips the system could eventually incorporate, given that it currently uses Intel (INTC) processors and will start using AMD’s “Opteron” processors later this year.

Feldman’s response was a rather futuristic, unprecedented move for a chip maker: to combine any kind of core, perhaps any kind of instruction set architecture, in a single semiconductor.

“The strategy at AMD is around having a [system-on-a-chip] SOC that allows you to place an wrapper around all different types of processor cores, to be able to extremly quickly drop in different cores,” Feldman tells me.

“If you get the that SOC part right, you have tremendously flexibility, the kind that hasn’t been delivered in the server market before by anyone,” said Feldman.

“It’s really cool. Because to be able to do that means you can move extraordinarily quickly across processor types, which would allow someone with a smaller R&D budget to compete with someone else with a much larger R&D budget.”

That’s a radical strategy for a chip maker with a traditional profit and loss based upon getting yields right for chips with one single instruction set, in this case x86, and focused on just one or two types of parts — microprocessors or graphics processors (GPUs).

When I asked if such an SOC might combine different instruction-set architectures on a single die, Feldman didn’t commit, but his answer leads me to believe AMD might consider parts that blend not just multiple processor types, but perhaps also blend x86, ARM, MIPS or whatever instruction set is required.

Finisar Off 6%: FYQ3 Revenue Misses, Q4 View Weak

Fiber optics component vendor Finisar (FNSR) this afternoon reported fiscal Q3 revenue below analysts’ estimates but beat by a penny on the bottom line. The company forecast this quarter’s results below consensus.

Revenue in the three months ended in January fell 8%, year over year, to $242.95 million, yielding EPS of 23 cents, excluding some costs.

Analysts had been modeling $245 million and 23 cents.

For the current quarter, the company sees revenue in a range of $235 million to $250 million, with earnings in a range of 18 cents to 22 cents a share. That is below the average estimate of $253 million and 25 cents.

Finisar shares are down $1.18, or almost 6%, at $19.11.

Finisar management will host a conference call with analysts at 5 pm, Eastern time, and you can catch the webcast of it here.


Microsoft: Oppenheimer Ups Target to $36 on Win 8 Promise

As Microsoft (MSFT) today formally announced its forthcoming Windows 8 operating system release is available for a preview download, Oppenheimer & Co.’s Brad Reback sent a note to clients stating that Windows 8 is “super fast, super fluid” and contains “no compromises.”

Reback, who has an Outperform rating on Microsoft, raised his price target to $36 from $32 based on the strength of what he saw at the developer event today at the Mobile World Congress in Barcelona, Spain. (AllThingsD‘s Ina Fried offered a great live blog of the event this morning.)

“Although MSFT disclosed few new features from its first developer preview, we liked what we saw,” writes Reback. “And its [Windows 8] ability to marry the desktop experience, touch, the cloud and mobile with no compromise.”

Reback believes the consumer version of Windows 8 will be out by late summer or early fall, based on Microsoft’s track recrod. He expects a “release candidate” to be offered, then a “release-to-manufacturing” version, and then general availability. Reback expects both the x86 version of the OS, for Intel (INTC) and Advanced Micro Devices (AMD) processors, to be made available at the same time as the version for ARM Holdings (ARMH)-based processors, even though what was offered up today was “only the bits for x86,” he writes.

And Reback is upbeat about the prospects for apps on the system:

MSFT also highlighted the early success it was having with developers creating new metro-style apps for its Windows store. We believe MSFT’s more attractive economics to developers combined with its increased transparency in the app approval process will help drive robust growth in apps in coming years.

Microsoft shares are down 19 cents, or 0.6%, at $31.68.

In a similar vein, Citigroup‘s Walter Pritchard this afternoon reiterates a Buy rating on Microsoft shares and a $35 price target, writing that fixes since the first demos of Win 8 suggest the software will be more impressive to general users this time around:

Microsoft highlighted over 100K improvements since the Developer Preview released at BUILD (Sep. ’11). Improved mouse interaction with Metro interface and the availability of ~100 apps in the Windows 8 app store should provide general users a more accurate representation of the OS’s usability.

Pritchard writes that Win 8 will help Microsoft integrate various hardware platforms with one software system:

The lines are clearly blurring between PC, tablets and handset and Windows 8 will serve to expedite the process. All the code will be common between them [x86 and ARM], as well as APIs. The plan is integrate hardware, software, and end uses into an ecosystem that all communicates together (work, home, car, personal) with TVs, game consoles and computing devices more tightly integrated.


NVDA, QCOM Tout Win 8 Developer Machines

Folks, it’s the battle of the application processors.

Over the transom this morning came two press releases, from Nvidia (NVDA) and Qualcomm (QCOM), both touting the fact that they will be offering “test PCs” to developers worked on Microsoft’s (MSFT) Windows 8, though neither release indicates the time frame in which the machines are expected to become available.

Nvidia will offer a machine running its “Tegra 3” processor, which it bills as having a “4-Plus-1″ architecture (four CPU cores and a fifth, lower-power core).

Qualcomm’s “Snapdragon S4 MSM8960” processor will be used in its test machine for developers, including its “Adreno” graphics processing core.

Gentlemen, start your engines!

Update: Nvidia on Thursday posted a video of the demo by Microsoft veep Steven Sinofsky from the Windows 8 demo, in which the preview of the software is running on a system using Nvidia’s Tegra 3 processor.