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Politics : Formerly About Advanced Micro Devices

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To: Jack L. Dlugach who wrote (706)	7/11/1996 5:53:00 PM
From: Andrew Chow	of 1586107

AMD's loss is as bad as INTC's at the time of your writing. What matters is the percentage loss not the absolute dollar loss. In fact for the day AMD ended down 5.8% and INTC was down 4.6%. As far as AMD's earnings, they were boosted by large one time gains due to the sale of securities at a gain, and a one time tax credit. On an operating basis AMD lost nearly $100 million in the quarter. Ugh! Things look even worse if you do the work to pull apart the numbers on a product basis. CPU's contributed only ~$65 mm in revenues during the quarter, or less than 15% of firm revenues. It will be increasingly hard to justify a huge allocation of firm R&D expenditures to such a small part of the firm, and an unprofitable one at that. In fact if it were not for one "small" problem, AMD would already be seriously considering exiting the CPU arena. That problem is that flash memory, the one strong point for AMD is about to suffer a pricing implosion. In fact, underperforming flash business is the one thing that could keep INTC from meeting its estimates (yikes, imagine an AMD shareholder trying to determine how he/she feels about that - A) great, my enemy is hurt or B) horrible, that's 10% of his profits and 90% of mine!). So instead AMD must push on in the CPU business with the following prospects: 3Q '96: K5-100 volume vs. what will by then be a $100 Intel part 4Q '96: K5-133 volume vs. what will by then be a $100 Intel part 1Q '97: planned K6-180 intro into the teeth of a P6-180 part with integrated SRAM cache priced at <$200. By the time K6 ships in volume, who knows where INTC will be pricing P6-class CPU logic only chips? Does $100 sound about right? It is tough, very tough to recoup your fixed costs and R&D investment with $100 CPU's. It takes INTC a lot higher ASAP's on much higher volume. What makes u think AMD can do it with 1/10th the volume and half the ASAP's?

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