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Technology Stocks : Advanced Micro Devices - Moderated (AMD)
AMD 225.28+5.2%3:36 PM EST
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To: Tenchusatsu who wrote (241810)10/4/2007 10:59:09 PM
From: economaniackRead Replies (2) of 275872
 
Tench "If Intel's monopoly tactics cause an average price increase of $14.89 per PC, then all Intel needs to do is agree to lower the prices of all their CPUs by $14.89 each."

This completely misses the point of AMDs complaint.

AMD alleges that Intel used illegal pricing schemes and other incentives so that BOTH the average cost of Intel CPUs was higher, and the marginal cost was lower than they could have legally sustained.

While there were many mechanisms that allegedly accomplished this same end the primary allegation is that Intel used rebates (in the form of Intel Inside promotional moneys) to lower the effective price on the last 20% of an individual customer's purchases well below the average cost. Suppose that a company is given a target which represents 95% of cpu unit sales and receives a 10% rebate on the total purchase for the quarter if the target is reached. Then the company effective pays nothing for the last 10% of units purchased from Intel. Put another way, for AMD to go from 5% to 10% of sales it must compete against Intel chips effectively priced at the negative of the Intel ASP. to go from 5-15% they compete against free chips, to go from 5-25% they compete against half price chips. That is the primary reason why companies tended to either be nearly half AMD or almost exclusively Intel, in between the distortion in marginal cost of Intel chips based on incentives made in impossible for AMD to compete. It is also why Intel had so much better luck predicting sales and profits. At the end of the quarter Intel customers could basically take excess chips for free from Intel (or even at negative prices if they were close to sales targets) and so had very strong incentives to move Intel product if they were short at the end of the quarter, that meant that Intel made their number and AMD got all the shortfall, which on AMD's smaller market share meant huge swings in the closing days of the quarter.

Again AMD's contention is that Intel used illegal nonlinear pricing and or threats and punishments to avoid direct price competition with AMD, with the result that Intel had higher ASPs while still maintaining market share, and AMD was effectively foreclosed from markets despite offering lower prices.

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