Aaron C, re:<If AMD's incremental sales came out of their abnormally high inventory, and the inventory was carried at or near cost, then their sale may not result in any increase in earnings at all. This is entirely possible, since the inventories were produced late last year when the ramp was young, and their most recent valuation is as of the December balance sheet.>
First the premise is wrong
If AMD's incremental sales came out of their abnormally high inventory
AMD did not have an unusually high inventory at the end of Q4. In fact a statement was made that the K6-2 was "sold out" -- there were few chips (probably 100's of K only) in the hands of distributors and none in the hands of AMD. As for the Athlon, there was essentially NO inventory in the hands of distributors at the end of Q3, since almost all output prior to October went to IBM and Compaq, so the 200K "excess" Athlons filled the distributor inventory of Athlons for the first time. I would not expect this number to be sold down until Athlon ceases to be a product.
the inventory was carried at or near cost, then their sale may not result in any increase in earnings at all..
This part makes no sense whatsoever. What do you mean by "cost." COST for an Athlon is less than $100 and, for a K6-2, less than $40. By valuing their inventory at cost, rather than expected sales price, AMD will reap a windfall profit for any K6-2 or Athlon they sell out of inventory.
BTW, the valuation of AMD's inventory actually DROPPED by 36M from Oct 1 to Jan 1. This is proof that AMD is valuing its inventory of finished goods very conservatively.
Petz |
