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July 28, 2000

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Advanced Micro Devices

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Subject:  The "Other" Reason to Buy AMD
Author:  corley1

We all know that AMD is performing phenomenally in their microprocessor segment against INTC with their Athlon processor. DDR chipsets will be launched soon along with a REAL launch of 1.1 gig T-birds. Later this year, when the mobile Athlon is launched, it will dominate the high-end (read high-profit) notebook market - there will be no mobile P4. AMD will continue to dominate the laptop segment after the Corvette (mobile Athlon) launch for the foreseeable future (at least a year!).

But what about the OTHER gem in AMD's crown � its Flash memory segment?

I'm sure you heard Chicken Little over at SSB screaming about the sky falling and Flash Memory demand drying up. But let's look at the facts and clear up the FUD (Fear, Uncertainty, and Doubt) surrounding the Flash memory market:

Worldwide demand for Flash memory is still at the very beginning of its product life cycle. Last year, flash shipments surpassed SRAM to become the second highest volume memory. The Flash memory market is expected to nearly double this year to more than $8 billion, and will grow to nearly $15 billion worldwide by 2002, according to Dataquest Inc. Why? Because 3G is coming; because the entire world wants a mobile-phone; and because Flash will be used EVERYTHING portable (cameras, cars, PDAs, calculators, cell phones, etc).

The idea that Flash memory demand is drying up is so ridiculous that it's laughable. Projected mobile phones sales are expected to reach 1 billion units by 2004: every one of those phones will have Flash memory!

The PDA (Palm Pilots, etc) explosion has just started. We are moving past the early adopter stage into mainstream acceptance: it's not just for corporate-execs anymore. The worldwide explosion of PDA demand is just on the horizon. FYI: PDAs need Flash.

New cameras are now using flash memory instead of film (my father just yesterday picked up a $1400 camera with 192 MB of Flash memory). New cars are using Flash memory. MP3 players use flash. These markets are in their infancy!!! If you don't think these markets are going to create an ENORMOUS demand for Flash, then your either stupid, an SSB analyst, or both.

Given the growth potential for this market (triple digit is good, right?), I would argue that buying almost any Flash memory maker for a 3 �5 year hold would be a great investment. But let's look specifically at AMD's Flash memory segment.

First, we must understand that AMD makes the highest quality Flash memory in the industry. They were the first supplier to meet Nokia's Flash memory requirements to address the high data rates of next generation cellular phones such as GPRS, EDGE and 3G (this is HUGE). AMD's exceptionally fast 32 Megabit and 64 Megabit products are the fastest and most advanced on the market. All of AMD's Flash memory products are guaranteed for a minimum of one million write cycles per sector and 20 years data retention, making them the most reliable non-volatile memory devices offered in the industry.

Even so, lets compare and value AMD's Flash to the inferior, commodity-like Flash memory "pure plays" FLSH and SSTI:

FLSH SSTI AMD-Flash Segment
Market Cap $759.2M $2,150.0M ????
Sales (mrq) $21.7M $103.2M 362.7M
Earnings (mrq) $3.5M $22.5M 64.2M*
*Assumes Flash memory segment operates at same net margin as rest of AMD

Therefore, AMD-Flash Memory Segment Market Cap should be:

$12.7B based on comparable FLSH Sales
$13.9B based on comparable FLSH Earnings
$ 7.6B based on comparable SSTI Sales
$ 6.1B based on comparable SSTI Earnings

for a range of $6.1B - $13.9B or $40 - $91 per share for the Flash Memory Segment Alone! Obviously, because "AMD-Flash" supplies better, more expensive flash memory� it should trade at the high end of this range OR HIGHER. But, for arguments sake, let's call it $75 per share.

This means, that at current AMD price levels, you can cheaply pick up the Premier Flash Memory Company in the industry and have AMD's entire semiconductor division (the other 70% of the company) thrown in ABSOLUTELY FREE.

How's that for value?

Disclosure � Long AMD . . . why aren't you?


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