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Technology Stocks : Intel Corporation (INTC)
INTC 35.51+1.2%11:26 AM EST
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To: Paul Fiondella who wrote (57262)6/5/1998 11:01:00 AM
From: Reginald Middleton  Read Replies (1) of 186894
 
<Most of the Internet stocks have not been making money
So why do they get bought? Because market share is more important than making money initially. AMD has been fighting a battle against the Intel monopoly to carve out a segment of the market for itself. If it comes up with a successful strategy to do that then it will make money. In fact the day AMD is perceived to have done this is the day that their stock takes off.>

The Interent stocks have VERY low fixed costs which allow them the luxury of foregoing positive cash flow for a while. Things are a little different with capital intensive companies such as semi's which must continuously invest so muc money uprfront in things such as fab's etc. The intial return on investment from a cash perspective is much higher in Yahoo than it is in AMD, therefore Yahoo can fund further growth through the generation of cash (albeit not much of it). The fact that they reinvested it means that it won't show up as profit. This actually increases cash flow for it shields those would be profits from the tax man. AMD on the other hand does not have that luxury due to the very high fixed cost hurdles they must first overcome. Once they are overcome, the rest is gravy (just ask INTC), but until then, fabs cost an awful lot more to build than websites.
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