Actually I think two things did in Nexgen. One was the election to use a non-Intel compatible motherboard design. The other was the lack of an FPU in early models, which killed interest in the CPU, and therefore the non-compatible motherboard, so they never had many sales.
According to the Cyrix-IBM deal structure, IBM can make money pretty much no matter what happens. They can't lose. The thing about Cyrix is that fixed costs (SGA, R&D, Int) only amount to about $30m/quarter, so if Cyrix is selling 600K units per quarter, which they did last quarter, they need to make a margin of $50/chip to break even. If they make a margin of $100/chip, then at 600k units/quarter EPS is $1.50/quarter (not including the 5Gx). If the M2 sells at $250 (it could sell for more), and has a cost of $100, then the margin is $150/chip, which would make EPS $3/quarter. Obviously this is vastly oversimplified and overstates the earnings potential, but the clear point is that while AMD needs to generate sales of 5 million chips/quarter to get decent earnings, Cyrix can do quite well with sales of 600k/quarter, and at 1m or more per quarter profit becomes immense due to the low overhead and low number of shares out.
As I have said, in order to accomplish the same thing, AMD needs to outsell Cyrix by 7 to 1. If the performance is comparable, which I think it will be, then AMD will have a hard time outselling Cyrix 7 to 1 unless the M2 has heat or compatibility problems, or Cyrix has limited production capacity (which it does).
Both companiew will no doubt have a good year.
Good luck,
Carl |
