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Technology Stocks : Intel Corporation (INTC)
INTC 35.54-6.2%3:21 PM EST
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To: Harry Landsiedel who wrote (61254)7/27/1998 8:40:00 PM
From: Paul Engel  Read Replies (2) of 186894
 
Harry - Re: "What do you think? - Intel Holding Inventory "

You are correct on that point.

But let's consider the consequences.

PC Boxmakers need "burst mode" quantities of CPUs - WHEN they order them and in SHORT ORDER after they place their delivery schedules.

What does this imply?

Large PC Boxmakers then require their CPU vendor to either have in inventory - or in their own short pipeline - a considerable amount of CPUs.

When 10 PC Boxmakers all require this same consideration, that narrows down their choices of CPU vendors. Intel has the fab capacity to deliver lots of CPUS in short order because their production rates are very high. Intel's financial depth ($7 BILLION in cash/equivalents) allows them the luxury to sit on a fairly large amount of inventory.

AMD can't do this - they are stretched too thin. Any inventory they sit on ties up badly needed capital. Large BURST orders can't be fulfilled because they only have one fab - not 6 or 7 fabs like Intel.

{===========================}

Now the REAL PLUS FOR INTEL - when Intel wants to switch over their product line to new CPUs, they can switch their manufacturing lines to the new CPUs and notify their customers that, unless special inventory adjustments or provisions are made, the OLD CPUs will be phased out at time T and beyond that ONLY the NEW CPUS will be available .

The PC BOXMAKERS will have only limited inventory of the OLD CPUs so they merely replace their older products going OUT THEIR DOOR with the newer CPUs coming IN THEIR DOOR (and motherboards as well, etc.)

The PC BOXMAKERS will not be sitting on 3 months of now obsolete CPUs which would have otherwise prevented Intel from making a product transition on INTEL's terms - not on the terms of the PC BOXMAKERS as dictated by their own bloated inventories.

Thus, Intel gets the flexibility to rapidly transition the marketplace to Intel's new product line on Intel's terms.

{==========================}

When downturns do occur, Intel will get a quick notification from their customers - the PC BOXMAKERS - and then Intel can throttle back their wafer starts and control the size of the inventory glut. The effect is to speed up the time that Intel ends up sitting on excess inventory allowing Intel to react to its own manufacturing downsizing - ultimately mitigating the size of the inevitable inventory glut.

Paul
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