Dan,
RE: Economies of Scale
If you want to perform a comparison of "economies of scale", look @ gross margin percentages, or (Revenues - Cost of Goods Sold) / Revenues.
Next, even with all those costs higher than AMD, Intel still manages to produce a profit, while AMD continues to amass losses.
Also, to rebutt your arguments with regards to Depreciation, this is straight from Damodaran..
Page 45
The relationship between depreciation and capital expenditures is a complex one, and it will be different for firms in different stages of growth and in different business areas. Firms in a high growth phase generally have capital expenditures that exceed dpereciation, while there is more parity between the two for firms in stable growth. Many analysts assume, for example, that depreciation is equal to capital spending fr firms in stable-growth phse. This implies that the ratio of capital expenditures to deprectiation should decrease as the firm moves through the growth cycle from high growth to stable growth.
Given that statement and looking at intel's last statement of cashflows, Intel had approximately 3B of depreciation while they had CAPEX of 6B. From Damodaran, it appears that Intel is expecting high growth. However, what Damodaran fails is if this is an absolute rule that is for all companies, no matter how high-tech or low-tech their manufacturing processes are.
From my prior posts to you, I explained that AMD is facing a "credit crunch" meaning that their Interest Expense is rising while operating cash flows are declining. That does not bode well for AMD's future.
During the first 9 months of this year, Intel had R&D costs of $930 million, while AMD's were $161 million.
Assuming that the numbers were transposed properly, Intel is no longer solely designs and manufactures x86 class uPs. Instead, Intel is branching out into other areas which (most likely) are causing higher R&D expenses.
Next, you state that AMD has copper, SOI etc. First of all, how much did AMD contribute for Cu and SOI research? I was under the impression that other corporations bore the majority of the expense. Next, the average computer user (who I believe makes up the majority of the computer market) couldn't care less whether the chip utilizes Cu, SOI, SiGe, GaAs, or even Au interconnects. When you purchase a car, do you care who built the engine? The transmission? Most likely, no.
Instead, the average user cares about MHz, like the average user looks for HP, Gas Mileage, etc. Users care about brand name and receiving the best value out of a brand name.
If (**NOTE: Big IF) (you pick your own numbers) $61 million of AMD's R&D is non-CPU, and $230 million of Intel's R&D is non-CPU, then Intel CPUs should be allocated $700 million in costs while AMD's should be allocated $100 millionn for the 9 month period in the most recent SEC filings.
Now, you are "arbitrarily" picking numbers to suit your argument. The fact is this, you, or I, do not know how much of the R&D expenses are related to x86 research. I believe that the majoity of the R&D expense is related to the development of products, other than x86 class chips.
If 100 million CPUs were sold in that period, and Intel has 87% market share, then chips from both companies have the same R&D costs (of $8).
Again, you are basing a "conclusion" upon an "assumption" that you are trying to enter in as "evidence". Change the "assumption" and the numbers change, therefore you assumption is not valid.
Dan, when analysts make forecasts of the future, Operating Expenses are forecasted as a Percentage of Revenues. You are comparing "arbitrary" numbers, instead you should be making these comparisons as a percentage of revenues.
Unfortunately, neither Intel nor AMD further break down their expenses allocating their expenses to their business units. |
