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Technology Stocks : Advanced Micro Devices - Moderated (AMD)
AMD 216.09-0.7%10:20 AM EST

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To: Pravin Kamdar who wrote (2757)7/28/2000 3:35:44 PM
From: GoutamRead Replies (2) of 275872
 
Pravin,

This is my take on AMD's indication in its Q2'00 Financial News release that "Despite the loss of revenues as a result of the sale of the Communication Products Division, AMD projects that sales will be higher in the third quarter than in the immediate-prior quarter".

I know you posted something similar, but I approached it in a different way.

Please note that, I'm not an expert in accounting, Also note that the numbers shown below are purely limited to the "Communication Products Division" part of the revenues.

AMD announced that it sold 90% of its Communications business for $375Millions. That means 100% of it was valued at $417Millions.

Now the key is to figure out Communications division Annual sales from this number. To do this, I assumed that this division is sold between anywhere from 1.5times to 2.5 times to its annual sales. This gives me max quarterly sales of approx $70Millions, and a min quarterly sales of $42Millions (ex: at 2.5x ... quarterly sales = 417/(2.5 * 4) ~ $42M). I used these Max and Min quarterly sales figures to derive the net effect on AMD's bottom line as below -


Min(in Millions) Max (in Millions)
1) Additional Revenues $42 $70

2) Gain due to elimination
of cost of doing
Communications Division
business $20 $34

3) Possible profit from $2 $3
Fab operations

Net gain before taxes $64 $107
Net gain after 20% taxes $51 $87
Gain in Q3'00 eps 29 cents 50 cents

1) AMD expects additional revenues from the other divisions will more
than compensate for the lost revenues from the Communications Division.

2) I added this because, AMD's comment shown above is wrt revenues. The
cost of doing communications part of the business is assumed to be
70% of its revenues. It was further reduced by another 30% to account
for savings that do not take into effect in Q3'00.

3) AMD is going to provide the fab services to the new owner
of the sold Communications division.

Please note that, I also assumed there would be at least some additional
revenue from CPG and Memory Divisions to cover the incremental cost of
sales to support the increased revenues from these segments.


Goutama
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