Intel losing $200M/quarter selling flash, according to this article: yahoo.businessweek.com
... To compensate for the PC slump, Intel is moving into other markets -- a time-consuming task for a $26.5 billion outfit. Intel should increase its market share for flash memory used in cell phones from its current 20% to 80% by yearend, according to its own projections. During this period, the flash-memory market should grow from $6.9 billion to $8.2 billion. Yet because of Intel's aggressive pricing, it loses $200 million per quarter in that business -- and won't predict when it will turn profitable. "They do need to diversify," says Grossman. "But they're sacrificing [their margins and earnings growth] near term." Intel's operating margins have dropped from 39.4% in 1997 to a projected 17.7% this year.
As I recall, Intel's flash revenues are not quite twice AMD's, which were $189M last quarter. I've read that Intel's flash is slightly larger than the combined AMD/Fujitsu, but AMD produces more flash than Fujitsu within the partnership.
So, with $370M of sales, Intel is losing $200M a quarter! Is AMD losing $100M a quarter on flash right now? Not nearly, because if AMD were losing $100M on sales of $189M, and if we assume that 2/3 of sales flow through to the bottom line (i.e., increased costs are only 1/3 of sales), then AMD would have to have Flash Sales of $189M+$150M, or $339M to be breakeven in Flash. In reality, AMD only averaged more than that in the year 2000 ($390M), in 2001, the average of flash sales was only $283M.
Why compare with Intel? Its clear that AMD is the low cost producer in flash. Apparently they've realized this and would rather let AMD make money in flash rather than lose money hand-over-fist ($200M loss on $370M sales). Intel has announced they're raising flash prices by 20-40%. In fact, it would take a 54% price increase in flash for Intel to make money, if volume remained constant. Volume is apparently rising, so maybe 30% is enough of an increase for them to break even in flash starting 2003.
Petz |
