ATI Technologies Overview

March 3, 2005 - Copyright by Morris Rosenthal - - contact info

Trading Notes

DELL
HPQ (Hewlett Packard)
INTC (Intel)
AMD (Advanced Micro Devices)
MU (Micron)
NVDA (Nvidia)
ATYT (ATI Technologies)
WDC (Western Digital)
IOM (Iomega)

Notes on trading ATYT stock for investing in my SEP

ATI reported record revenues and earnings in the first quarter of FY 2005 of $614 million and $64 million respectively. This represented a 30% gain over the first quarter of FY 2004. R&D expenses $73 million in the first quarter, which puts them in the same ballpark with Nvidia. For the full FY 2004, ATI had gross revenues of a hair under $2.0 billion, with gross margins just under 35%, and net income of $205 million. FY 2004 R&D spending was $270 million, more than double marketing at $123 million, and administrative overhead was $49 million. That compares (well) with FY 2003 earnings of $35 million and a $50 million loss the year before that. According to Mercury Research (numbers from ATI's annual report), ATI dominated the graphics processor market for notebook PC's with approximately 80% market share, and had over half of the desktop (discrete adapters) market share. ATI also supplies graphics chips for Nintendo's Gamecube. Desktop revenues accounted for less than half of total revenues in 2004, despite 30% unit growth in that sector, down from 55% in 2003. Notebook products accounted for 35% of revenues, down from 40% in 2003, which means that other applications grew from 5% to more than 15% of total revenues. ATI has completed the transition from being a video card manufacturer to primarily supplying graphics processors to OEM's, about a 5:1 ratio in 2004. Financial results were hurt by the 10% rise of the Canadian dollar vs the US dollar in 2004.

ATYT shares never went up with the NASDAQ bubble because it actually looked like the company was locked into the cut-throat video card business and perhaps falling behind NVDA graphics technology during that period. The overall impression one gets from reading ATI's annual report is that they are practically giddy about their future prospects. I actually tried buying ATI stock as a more rationally valued proxy for Nvidia, after Nvidia shares jumped on news earlier this month. I bought at $17.74 and sold a week later at $17.22. Not exactly a money making proposition, but I remain convinced that ATYT shares are a better value than NVDA shares. I plan to revisit the ATI annual report when I have some more experience reading between the lines, maybe the options grants were above average, I assume I must be missing something. They've got $150 million less on the balance sheet than Nvidia, but I don't see how it can justify the multiple spread. Maybe there's just a penalty for Canadian tech stocks.

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