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Technology Stocks : Advanced Micro Devices - Moderated (AMD)
AMD 264.34+2.5%3:59 PM EDT
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To: pgerassi who wrote (219940)12/10/2006 11:02:07 PM
From: Sarmad Y. HermizRead Replies (1) of 275872
 
Dear Pete,

re >> What is being discussed is between 90nm and 65nm both on 300mm wafers.

Regardless of intermediate transitions, the point is that to maintain gross margins, AMD has to achieve significant cost reductions. The reductions have to be in comparison with whatever they had back in q2. Whether that was 300mm or 200mm.

The reason manufacturing cost must be reduced, is that like-for-like ASP has dropped significantly. Like 40%, according to the numbers published back in the spring.

That happens to be Intel's previously published expected cost reduction (expected as a result of converting to 300mm and 65 nm). I think Intel's logic is that by going to 300mm and 65 nm they can reduce ASP, maintain margin, and expand the units sold, thereby increasing total profit. Of course that's true only if

1) 40% cost reduction is achieved.
2) there is a market for all the extra production.

The same requirements hold true for AMD. It doesn't matter if they paused for a year at 300mm and 90 nm. Since the price reductions have already occurred, they have to achieve cost reduction of like magnitude. I don't think they have. That's why I expect AMD margins to drop further. We'll know if I am right in a month.

Sarmad
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