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Technology Stocks : Advanced Micro Devices - Moderated (AMD)

AMD 206.14

-4.1%

3:59 PM EST

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To: Cirruslvr who wrote (12934)	10/11/2000 3:10:19 PM
From: Charles R	Read Replies (3) of 275872

Cirruslvr, <Would you mind clarifying for the thread and I what channel stuffing means? > Once upon a time companies used to push a lot of product into distribution at the end of the quarter to make their numbers. This was generally called "channel stuffing". It so happened that some companies that did this to an extreme extent got burnt when they had two bad quarters in a row. Most companies and analysts wisened up to this and there are not too many companies that do this kind of thing anymore. Today channel stuffing is more complicated. "Channel" in the truest sense is not limited to parts distributors. From a supplier perspective, one can stuff distributors, brokers, spot markets or OEMs (a "channel" for the product). The distribution part is supposed to be stuff-free according to the companies that say they count only products that are "sold-through" like AMD does. Theoritically, distributors are supposed to report the product sold through in the quarter and companies like AMD are supposed to use that sell-through numbers to see how much product got sold. In practice, there are several logistic-related and country specific issues that provide some fudge to companies. These details can be complex but let me say at the end of the day CFOs have some leeway in this matter. The leeway is nowhere close to what it used to be in the true "channel-stuffing" days but is present nonetheless. Now, let's look at the OEM side. One of the more common ways stuffing is done at the OEM level is by doing pull-ins. An example of a "pull-in" is when a customer requests product on October 5th, the supplier ships it a week in advance and books it as a sale in the quarter ending September. After seeing this happen a few times the OEMs have wisened up to this. An OEM like Dell or Compaq would penalize a supplier who does this and are unlikely to agree with such a practice without some serious high level discussions. A second or third tier OEM may do this if there is enough incentive in the deal. This is in part what seemed to have happened in Europe for AMD a week back. And that's why we saw the lower pricing there a bit early. This is simple stuff. The actual mechanics of these deals can be quite complex and sometimes involve other channel components such as brokers and spot markets. If I were to guess, I would say AMD probably stuffed 100-200ku this quarter. The 100-200k number is not much but still tells me the quarter was tight. If the K7 number turns out to be about 3.6Mu, then I think this guess is valid. If AMD sells more then 3.7Mu then I would say what we saw was an aggressive price move and there was no channel stuffing. We will find out soon enough. Chuck

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