Advanced Micro Devices - Moderated (AMD) Message Board

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Technology Stocks : Advanced Micro Devices - Moderated (AMD)

AMD 217.53

+1.5%

Nov 28 9:30 AM EST

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To: Sarmad Y. Hermiz who wrote (200549)	6/5/2006 10:34:14 PM
From: pgerassi	Read Replies (1) of 275872

Dear Sarmad: You have it wrong! More units push prices down. Osbourning decreases the sell rate, depresses prices and what inventory is there takes even longer to burn off. AMD has the opposite problem. Less units push prices up. More demand pushes sell rate higher, further increasing the value of any invetory and shrinks any time chips are in inventory to short bursts or allocation. As to how much inventory is in Intel's pipeline, its not as small as you seem to think for one. And they still need to make more because prudently NGA has to ramp up over time. Once it is present, all that inventory's value is cut dramatically and Intel has to pay for that cut somehow. They can pay it using marketimg dollars up front or by more product at much cheaper prices. The latter method requires Intel to sell valuable product to OEMs at vastly cheaper prices with the OEMs pocketing the difference. This backdoor revenue cuts Intel margins more because OEMs have to do work for it and the time premiums force the discounts to be quite a bit larger in total. To cover turning $5 billion in inventory into $3 billion now and eventually $1 billion in the future requires either $2.4 billion in excess marketing money or $6 billion in discounts due to risk premiums. These discounts also apply to anything new in the pipeline over the period so new revenue is also cut. In the frst case Intel has a $2.4 billion loss before NGA launches likely in Q2 on top of all the restructuring charges or sells $140 ASP parts for $100 without changing the list price. The companies pocket the difference when the units sell. The problem is that if the public gets wind of this and us smart ones do, the ASP drops and Intel has to discount further. Thus $300 NGA parts are sold for $150 until end 2007. Either way Intel gets hit $1.2 billion each quarter until the OEMs feel whole. The latter may allow Intel to make a profit in each quarter as long as the units and ASPs are enough to cover the discounts. If either Intel's market share drops, the real ASPs fall below the cost of making them or both, Intel will lose more with the second method. And you know what that means. IMHO, Intel will use the first method blaming restructuring charges. Pete

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