AMD DCF valuation… $10.60 target

NUMBER CRUNCHING time.

I have just crunched some numbers for AMD.

I assumed that AMD’s revenue will grow by 10% in 2011 due to the introduction of the FUSION… Sales will increase 10% in 2012 and then by 5% after that.

I assumed that AMD expenses will go down due to the outsourcing of their manufacturing operations. However, the price is very sensitive to the expenses margin. In my case, expense margin = Total Operating Expense/Revenue. The higher this margin, the higher the operating expense.

Broker reports show that operating expense will be about $2.3bln in 2011 which is in line with my 30% expense margin.

If I raise the EXPENSES margin to 40%, the valuation goes down to only $6. I assumed that EXPENSES margin will not go above 40% as AMD is now outsourcing its unprofitable manufacturing operation.

Currently, the EXPENSES margin is set at 30%… (Due to outsourcing)

Here’s the DCF shot.

If AMD is able to steal market share from INTEL (APPLE RUMOUR.. AMD FUSION going to MACBOOKS!), then I think we could even project AMD’s revenue to 15% growth in 2011.

Here’s the updated DCF with 32% EXPENSES margin and 15% growh rate in 2011.

54% upside….

Ignore this DCF valuation if you don’t understand what’s going on.