Microsoft and Nintendo Provide an Update on Their Next-Generation Game Consoles: We expect ATI's C2006 growth to be catalyzed by the three royalty streams from Microsoft, Nintendo, and QUALCOMM (expected to begin in late-2005, adding an estimated $0.24 in combined annual earnings power in C2006).
1. Microsoft Xbox-2 Development Agreement: We assume ATI receives a royalty of $3.00 per Xbox-2 console from Microsoft, and apply this rate to an estimate of 8 million unit shipments in the first 12-months from launch (we expect for the 2005 holiday season). This translates into an estimated revenue stream of $24 million and EPS of $0.08E in C2006. On Mar.9 Microsoft provided a brief product update on Xbox-2, indicating the system will deliver over a teraflop of computing performance (one trillion calculations per second).
2. Nintendo GAMECUBE-2 Development Agreement: We estimate ATI will receive a royalty of $2.00 per GAMECUBE-2 console and $0.50 per applicable video game title from Nintendo, and believe it is reasonable to assume that ATI may earn revenue and EPS of $25 million and $0.08 in EPS, respectively, in C2006. On Mar.10 Nintendo indicated GAMECUBE-2 is proceeding on schedule (we expect a Xmas 2005 launch time) and will include both backward compatibility to GAMECUBE-1 and built-in Wi-Fi protocols.
3. QUALCOMM Strategic Partnership: We estimate ATI receives a royalty of $0.50 per chipset from QUALCOMM, and apply this rate to our estimate for 50 million MSM7xxx chipsets in C2006. This translates into an estimated revenue stream of $25 million and EPS of $0.08 in C2006.
