Joey, Intel just cut prices 25% pretty much across the board except for Pentium II's, which are maybe 15% the volume of other Pentiums. How do you expect profits to grow under those conditions? Since the gross margin was around 60% last quarter, volume would have to increase by 50% just to give equal profits. Here's the math in proportional numbers:
....... 2nd quarter......3rd quarter
Units.. 100..............150
AvPrice 200..............150 (25% less)
Revenue 20000............22500
VarCost 8000.............10500 ($80 per unit, 2nd quarter, $70 3rd)
Gr Prof 12000............12000
In the above example, I've even assumed that Intel can reduce the "per-unit" variable costs of production by 13% in one quarter (42% annual rate) and yet you see that to maintain the same gross profit, a 50% increase in unit sales is required IN ONE QUARTER.
For sure, sales in the month leading up to the pre-announced July 28 cuts were DOWN. How much do you think August and September sales grew?
Yea, I've ignored the Pentium II, but I don't figure its a big contributor in the 3rd quarter. I'd expect the November price cuts to kill the whopping profit margins on the P2, so it won't get much better then, either.
Well maybe the estimates for Q3 are below the actuals for Q2, then INTEL can meet the estimates with less than a 50% sales gain (PS, thats an increase of 406% a year). But then, why am I paying 25 x earnings for a stock with a negative growth rate in earnings?
Petz |
