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Politics : Formerly About Advanced Micro Devices
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To: RDM who wrote (58672)5/18/1999 6:21:00 PM
From: A. A. LaFountain III  Read Replies (2) of 1571327
 
RDM: re Gross Margin estimates

Sorry, but that's too easy!

In 1998, Intel Architecture Business Group (IABG - MPUs and motherboards) were $21.545B of INTC's $26.273B in revenues and $9.077B of INTC's $8.379B in operating profits (there were modest profits in the Computing Enhancement Group and losses of $1.056B in All other). So the operating margin in IABG was 42% (9.077/21.545) and that figure includes R&D and SG&A. If we attribute 82% of R&D and SG&A to the segment (to match the revenue breakdown), then operating expenses were $4.5B and the segment gross margin was 63% ((9.077+4.5)/21.545). But that gross margin includes motherboards, which have a high purchased content. We can assume that without MBs, the gross margin for the segment (MPUs) was several points higher - say 65-67%.

So you would need to adjust your 1Q99 model for both revenues (perhaps using 82% of the $5.9B reported to get the IABG segment and then backing out MBs) and gross margin on the resulting MPU revenues to derive MPU costs (or flip it around and estimate MPU costs to create an MPU gross margin of about 66%).

The arithmetic is not particularly hard, but it's important to correctly identify as many of the variables as possible. The hard part is to come up with the constituent estimates so that the whole has some intellectual robustness. Good luck. - Tad LaFountain
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