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Technology Stocks : Advanced Micro Devices - Moderated (AMD)
AMD 236.73-6.1%Jan 30 9:30 AM EST
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To: rsi_boy who wrote (138192)10/30/2004 3:09:56 AM
From: PetzRead Replies (1) of 275872
 
<<So if [Intel's] ASP dropped by 40%, they would be losing money. (100*2373/5928=40) That's an ASP of about $90, maybe $95.>>

rsi:<you're forgetting demand elasticity. if intel dropped prices 40% they might sell a lot more units>

Not enough additional units to make much of a difference. First, if they did this tomorrow, AMD would STILL gain market share in Q4 and have flat market share in Q1. It takes time for OEMs to change their SKUs and design in Intel instead of AMD. The top 20% of AMD's $ sales is untouchable because Intel can't produce fast enough chips.

If Intel did this, it would take them at least a year to take away 1/4th of AMD's unit sales. AMD has about 10% of CPU revenue share, so 1/4th of that is 2.5%, or about 3% of Intel's current CPU sales.

And even this 3% of additional CPU $ sales would have some costs associated with it. So Intel's net profit margin would be at most 1.5%.

In short, as Intel themselves said, there is not much demand elasticity since AMD's current share is only 16%, some of that is beyond Intel's performance level and inertia puts a 3 to 6 month lag on the results of price cuts.

Intel's price curve would also have to be exceedingly flat because they are prohibited by US law from selling below cost even at the bottom of their line. This would mean that customers would all want 3.2 GHz and faster product, which Intel could not deliver.

Petz
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