Advanced Micro Devices - Moderated (AMD) Message Board

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Technology Stocks : Advanced Micro Devices - Moderated (AMD)

AMD 219.83

+1.1%

Dec 1 3:59 PM EST

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To: Sarmad Y. Hermiz who wrote (201477)	6/10/2006 12:06:47 AM
From: colin1497	Read Replies (1) of 275872

You miss the point, you speak merely of cash flow. Fabs get depreciated, not expensed. Besides, they can't stop ramping, ramping the new fabs is the only hope (in their view) of being competitive in the future. They have fabs today and those fabs must make chips. The chips they can make today suck, and they're going to make better ones as soon as possible, but they can't convert the entire infrastructure overnight so they have to make the chips people can use, even though they have to sell them at a "loss." If they don't make the chips the loss will be even bigger because the overhead doesn't go away. As long as they're selling for more than their direct manufacturing cost then it's better to make chips and sell them cheap than to not make them. This situation and drag on their profits exists for the next 12 months at an ever decreasing level as they ramp the new design, but it does exist. Lowering prices isn't about hurting AMD as much as it is about finding the best pricing balance between oversupply and underdemand such that they lose the least amount of money possible on netburst while phasing it out. The big debate, at least in my mind, is how bad will AMD be hurt? The interesting thing is that design win momentum and INTC's limited ability to deliver the NGA in sufficient volume, likely will carry AMD for a while in a lot of areas, and AMD would be happy with $100 ASP's, so I don't think it's going to be as bad through the end of the year as many think. The risk is Q107 and Q207 when INTC has much less capacity in netburst and can squeeze AMD harder. I actually think AMD has a bit better plan than they are being given credit for. We'll all see... Overall both companies have interesting problem that occurs with any capital intensive industry where competition drives overcapacity. Think airlines and steel...

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