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Politics : Formerly About Advanced Micro Devices

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To: f.simons who wrote (123549)	9/7/2000 9:11:25 AM
From: pgerassi	Read Replies (1) of 1574258

Dear Frank: I think that what Kumar and many analysts do not want to say is that demand is soft for Intel CPUs only and AMD has plenty of demand. This would mean that Intel has really two choices and both of them are bad. The first is to price their CPUs down to a level where they can sell them thus, lowering their ASPs to a point where gross margins suffer but, they still make money (just not as much as they are used to). The second is to keep prices where they are and claim that they have plenty of demand. This will become increasingly obvious that they have plenty of supply at lower ASPs but not enough supply for the high end. This is because they must limit their low end to keep up the ASPs for their high end CPUs. What they risk is that their customers begin to switch to their competitor's CPUs (AMD) due to the artificial shortage. This reduces their demand and makes it appear that the shortage is lessening. Given the second choice that fits the current facts, Intel is persuing a very dangerous course. Once AMD begins to start making large quantities of CPUs say somewhere between 5 and 10 million a quarter, Intel will have very little sales of high end CPUs no matter what they do. Their ASPs will tank to low levels (still probably sustainable without any drag by unprofitable side businesses) being obvious to everyone at a surprise quarter earnings statement. The signs will be there for all relatively intelligent people (like us) but, the vast majority of retail stockholders will be left "holding the bag" when Intel tanks to their true worth (still a valuable company like IBM in the late 80's but not .5 trillion worth) say about 50 to 100 billion (this could be the worth due to their ability to act as a silicon foundry (although massive layoffs will be necessary)) or a stock price about $7 to $14 a share (a p/e of about 10 to 20 (their natural amount before the tech run up)). The problem for us is it is very hard to see if Intel will continue this strategy or come clean at some point (only if their other businesses start making a lot of money). If they continue, just when it will be obvious is unknown. Certainly no later than Intel Capital being sold out and AMD producing 15 million CPUs in a quarter (about Q1, Q2, or possibly Q3 2001 given AMD production forecasts and Intel Capital's burn rate). This all presupposes that Intel does not pull a rabbit out of their hat with a true barn burner of a CPU (a practically non existent possibility (there would be some believable rumors to that by now)). All in all, a very interesting (but frustrating to us) period coming up. Pete

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