Wednesday, January 27, 2010

Gilead Sciences better than Gold

Gilead Sciences reported Q4 results yesterday, and at last some investors took notice today of just how profitable this company is and will be. Meanwhile the gold bugs may be beginning to see the end of their bubble, as I predicted in The Gold Bubble on November 18, 2009.

Give me a company that has a plan to grow fast any day. In 2010 most of Gilead's revenue and earnings growth will come from the growth of the antiviral market and gaining market share for particular indications like HIV and Hepatitis B within the market. But Gilead has a deep pipeline of therapies that may come online this decade. As always, the number of therapies that are ultimately approved by the FDA are a small percentage of those that come out of preclinical trials. But Gilead has drugs at all phases of development, and they have shown an ability to pick a good percentage of winners in the past.

Revenues were $2.03 billion, up 13% sequentially from $1.80 billion and up 42% from $1.43 billion in the year-earlier quarter.

Net income (GAAP) was $802.2 million, up 19% sequentially from $673.0 million and up 43% from $560.0 million year-earlier.

Earnings per share (EPS) were $0.87, up 21% sequentially from $0.72 and up 47% from $0.59 year-earlier.

A bit of care should be taken in making projections because Gilead receives royalties on Tamiflu. Royalties have been way above their normal levels (reaching$228 million in the quarter) because of the recent flu scare. On the other hand, avoiding Gilead because its Tamiflu royalties fluctuate from quarter to quarter is overlooking the strength of the rest of the company. Product sales (excluding royalties) were up 30% y/y. That is phenomenal growth, and it comes with high profit margins.

While there are always risks and uncertainties, it is very likely Gilead's products will continue to gain market share in 2010. Even if Tamiflu revenues fell to zero, I would consider Gilead undervalued at today's closing price.

For more details, see my Gilead (GILD) Q4 2009 analyst conference summary.

I'll follow up, when I can, with a longer report on Gilead's product pipeline.

I own Gilead stock.

Keep Diversified!

Sunday, January 24, 2010

Intuitive Surgical Q4 Analyst Conference

Intuitive Surgical (ISRG) is back in growth mode. At the analyst conference Thursday management reported Q4 2009 revenues that were up 15% sequentially and 40% from the year-earlier quarter.

In Q1, 2009 the recession had impacted even mighty Intuitive, with revenues flat from year earlier.

So while the company has great products, and is doing great, it might be cautious to attribute the good Q4 numbers in part to equipment purchases that were delayed earlier in 2009.

For details see my Intuitive Surgical Q4 analyst conference summary.

While I believe that ISRG will continue to see good growth in the long run as its robots are used for an increasing variety of surgeries, I don't own the stock. Compared to other growth companies the Price/Earnings ratio is rather high, though not at the kind of ridiculous levels we saw before the panic. Investors have done very well with Intuitive, and those who dumped the stock in late 2008/early 2009 now regret their panic.

I do own shares in a much smaller, even more speculative, surgical robotics company, Hensen Medical.

Saturday, January 23, 2010

AMD Q4 2009

AMD reported on its fourth quarter of 2009 this Thursday. It was a quarter of impressive improvements, with sales up 18% sequentially and 42% from the year-earlier quarter. That is excluding the almost $1.25 billion payment from Intel, which was entered in the operating expense accounts, and so did not appear in revenues. AMD also excluded the payment from non-GAAP numbers.

The hot money bailed out Friday, sending the stock price down over 12% to below $8. That is the way of hot money. Looking at the charts, my guess is a lot of hot money bought in above $8 during December and January, which makes this another example of hot money being stupid money.

Investors, the people who actually reap profits from business activity, need to look at the moving parts within AMD to see whether staying long is justified. The main reason to suspect it is not is that AMD is competing against Intel and NVIDIA, two very tough competitors. In addition, ARM-based processors are coming on strong against the x86 brethren, so in the next few years companies like Marvell (MRVL) may be nibbling even at mighty Intel's heels.

First, look at measures of profit. I'll use three: GAAP net income, non-GAAP net income, and EBITDA. Again, I exclude the $1.242 billion Intel settlement. GAAP net income was negative $64 million. Non-GAAP net income was positive $80 million. EBITDA ((Earnings Before Interest, Taxes, Depreciation and Amortization) was $282 million, impressive except that AMD has a lot of debt and so interest, and has invested a lot of capital and so depreciation does represent cash spending in the past. Still, I think it is fair to say that by some investor standards the quarter was profitable. The non-GAAP and EBITDA numbers exclude the former fabrication business. This makes sense to use since that business has been spun off (to GlobalFoundries). Starting in Q1 2010, AMD will be fabless.

As to the future, we want to know whether revenues will continue to ramp, and whether profit margins on revenues will continue to improve. Which means we have to look more closely at product trends.

AMD is now in the graphics processor business, and after years of struggle is showing some success. NVIDIA is the company to beat, and while that is still a distant goal as far as chip revenues, AMD almost certainly gained market share in Q4. AMD has the only GPUs (graphics processing units) that work with DirectX 11, the newest graphics standard. This attracts forward looking purchasers, and resulted in graphics revenues of $427 million, up sequentially 39.5% from $306 million, and up 58% from $270 million year-earlier. The worry would be that NVIDIA will have a better DirectX 11 capable processor some time in 2010. It is not a for sure thing, given how NVIDIA has been stumbling the last couple of years. While I don't expect AMD to have another year of 58% GPU revenue growth, I suspect whatever NVIDIA does, AMD will see healthy growth this year. We are going into a computer refresh cycle, and NVIDIA's slowness to market means it lost opportunities to be built in to systems.

In the CPU business revenue growth was robust, if not as eye-popping as with GPUs. Revenue was $1.214 billion, up 13.5% sequentially from $1.069 billion, and up 39% from $873 million year-earlier. Growth was described as broadly based, but Opteron 6-core server processors were described as having been a source of strength.

If profit margins expand along with revenues in 2010, today's AMD market capitalization of $5.3 billion is going to seem ridiculously pessimistic. On the other hand, since AMD still has almost $5 billion in long term debt and liabilities, any further stumbles of the kind we saw this last decade could have very serious consequences.

Q1 is typically seasonally down for CPU and GPU manufacturers. Given that AMD was not able to ship enough of its new GPUs to meet demand, there is at least a possibility that Q1 revenues could be closer to flat for AMD. That would be a very good sign for the full year 2010.

On the whole I would say I think AMD stock looks undervalued at $8 per share, but then I am a long-term AMD investor, so maybe I am being overly optimistic.

For more details, see my AMD Q4 2009 analyst conference summary.

See also

Wednesday, January 20, 2010

Will Apple Eyefinity?

For a technology industry person, I am not much on gadgets. I've played with an iPhone and it just made me want a bigger screen. If I shell out cash, it tends to be for better business functionality. I am not a traveling salesman. I work out of my home office. So I do like big, affordable screens. Currently I have a two-screen set up, both Acer screens, one 17", one 19". My graphics card is an ATI Radeon X1200, which a gamer would scoff at, but which is fine for business applications.

Apple ( has been mainly about mobile trends for over a decade now. After blowing much of their consumer loyalty back in the late 1980's, they regained some of it with their portable computers, or notebooks, during the 1990's. Apple became important in the pocket-sized mobile space with the iPod introduction in 2001. Then, a couple of years ago, they took on the cell phone market with the iPhone. With their high-margin model, they have made a very successful business.

Their desktop computers, however, have continued to have low market share, if not as bad of a share as they had five years ago. The Steve Jobs magic spell just has not worked out very well there so far. The last time I had a moment of Apple computer envy was way back in the decade when a friend was working on an Apple desktop with a nice big screen. It made me want a Windows computer with just as big of a screen.

So what do I want, when my business capital budget can afford it? What I really want is an Eyefinity display.

An Eyefinity display consists of one of the newest AMD/ATI graphics cards and as many as six screens. Basically, absorbing your whole visual field. The technology is in its early days, and can only get better. I expect by the holidays of 2010 you will be able to buy integrated computer systems, with graphic cards and screens, at major retailers. Also, it is not a system you want to add to a single-core processor system, or even a dual-core system. It is a good reason to upgrade to quad-core. (I'm still at dual core, myself, using Windows Vista).

Unless Apple has decided to leave the desktop space to wilt on the vine, I can't imaging that Apple won't respond to Eyefinity. The sanest response would be to simply add Eyefinity to a Mac. Since the secret is the graphics card, Eyefinity can be added to Intel processor based systems. Right now Apple uses Intel processors with NVIDIA graphics. And certainly NVIDIA will eventually have a response to Eyefinity. So maybe Apple will just wait for that. I don't see Apple coming up with its own proprietary competitor. The choices seem to be do it AMD's way or do it NVIDIA's way.

Samsung and AMD demonstrated both three and six panel Eyefinity displays at CES earlier this month, with suggested prices of $1,899 and $3,099 for the displays. Eyefinity capable graphics cards currently include the 5970, 5870, 5850, 5770 and 5750, at a wide range of price points and capabilities. There is also a validation program to help consumers identify products that are Eyefinity compatible.

My AMD analyst conference summary page

Monday, January 11, 2010

Celgene Q4 2009 Earnings and Revenue Estimates

Celgene released preliminary, estimated results for 2009 today [See Celgene Reviews 2009 Achievements]. Since we know the results for the first three quarters, we should now have an accurate estimate for Q4 numbers.

Non-GAAP Revenues for 2009 were stated at $2.67 billion. Non-GAAP revenues by quarter were $601 million in Q1, $626 million in Q2, and $292 million in Q3. That would make Q4 revenues $751 million. That is very strong growth, especially considering that Celgene did not have a recession-related slump in 2008.

Non-GAAP EPS (earnings per share) for 2009 were stated at $2.08. By quarter they had been $0.44 for Q1, $0.46 for Q2, and $0.56 for Q3. Leaving Q4 EPS around $0.62. Again, very strong growth.

The press release also estimates 2010 revenue of $3.2 to $3.3 billion. Estimated non-GAAP EPS for 2010 is $2.55 to $2.60.

There are the usual risks and uncertainties that apply to biotechnology companies, but Celgene as a company is certainly on a roll. At today's stock price it is not as cheap as some pharmaceutical companies, but today's price will look real cheap by 2011 if current trends continue.

Celgene's main product is Revlimid for multiple myeloma, but it has other major therapies and a rich pipeline of potential future earners.

Keep diversified!

More data:

My analyst conference summaries for Celgene