Dear Duke of URL:
Intel has far higher overhead. If the semi business were say to drop to 50% of the current size. Halving Intel's Revenue would cost it $4B a quarter. They only earn $2.6B a quarter and $750M comes from stock. If semi business halves, most of their stock would tank to 10% of current valuations, thus no earnings or real losses. Removing capital and one time tax adjustments ($600M) leaves $1.25B minus $4B equals $2.75B in losses a quarter.
AMD currently earns $170M and has $1B in revenue. However, It has long term contracts for flash ($400M) and sells all of its CPUs that it can make. Even in a semi downturn, it is debatable if they would see a drop in the ASP of their CPUs, thus any downturn would maybe drop revenue about 10% or $100M. Thus AMD would still make money ($60M).
Now much of the book value of Intel is in stock. If this tanks, it would go from $12B to $1.2B. Book would go to $8B and at a $2.75B/qtr burn rate, it would disappear in 3 quarters.
However, a semi downturn is not very likely. At worst, a 5-10% downturn in overall business. The hot business remaining would be in flash. With FASL (with Fujitsu) being the major player in NOR flash (the one used in the high growth Cell Phone Market) and the long term contracts, AMD has a much better stance than Intel. In the CPU business, Intel's market share is beginning to decrease versus AMD. It also just announced they would replace i820 motherboards with a MTH and SDRAM for i820 motherboards with RDRAM. The motherboard swap will cost about $100-$200 each (you have to include the labor costs of the swap) plus the RDRAM cost of $200 per 128MB (assuming Intel can get RDRAM at a fantastic discount due to the HUGE order of 128TB (1M 128MB RDRAM DIMMS)), makes the overall cost around $400M assuming Intel is correct that 1M i820 motherboards would need to be replaced.
All this shows is that Intel would suffer as much, if not more, in any semiconductor business downturn than AMD. If its reputation is tarnished, it may go to a 10 to 15 PE or $25 to $38 a share even with the current semi business outlook.
Pete |
