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Politics : Formerly About Advanced Micro Devices -- Ignore unavailable to you. Want to Upgrade?

To: Cirruslvr who wrote (63267)	6/25/1999 12:53:00 AM
From: Paul Engel	Read Replies (1) \| Respond to of 1570972

Cringe - Re: "In the first 9 months of this year, AMD may lose the amount of money they got from the Vantis sale. " With a $128 Million loss in Q1, a $200 Million Loss in Q2 and $60 Million in Vantis Cash going to Lattice (reducing the effective sale price to $440 Million), it will only take a $112 Million Loss in Q3 to wipe out the entire Vantis sale - as you noted. I'm sure AMD has the ability to do this without breaking a sweat. Paul

To: Cirruslvr who wrote (63267)	6/25/1999 10:25:00 AM
From: A. A. LaFountain III	Read Replies (4) \| Respond to of 1570972

Cirruslvr: re "AMD may lose the amount of money they got from the Vantis sale" You make an interesting point, but I don't believe it is a scary one. AMD netted about $440 million of cash from the Vantis sale. As with the sale of any business, the transaction should represent an appropriate discounted value of the future stream of earnings. I estimate that Vantis made about $15 million in 1998 after tax (although I may be underestimating the allocation of some corporate expenses to the standalone operation, since I'm assuming that such allocations were minimal). To value this property, you have to make assumptions about its growth potential. While the PLD sector is exhibiting growth, it has been disproportionately shared among the participants - ALTR and XLNX (more recently) have been taking more than their share. Once the largest PLD vendor, Vantis was roughly the size of LSCC in third. Economies of scale in R&D and marketing can be assumed to become even more significant, which implies that as the third (or fourth) vendor in the market, Vantis would be likely to fall farther behind the leaders. My conclusion is that AMD did the right thing when it got 30X last year's earnings for the property. Assuming the $15 million in Vantis earnings grew at 20% per annum, it would take 12 years for the cumulative earnings to reach $440 million. The Athlon has the potential to generate that much profit within the next 12 quarters. Before this comment generates all sorts of responses from those thread participants that favor Intel at this juncture, allow me to point out a couple of things: 1) I used the word "potential," so any disagreement should be on the probability factor one chooses to use. 2) The Vantis assumptions include some potential, as well. Even if the Athlon fails to generate the profitability mentioned above, it does not necessarily change the relative merits of the Vantis hold/sell decision. 3) It's very interesting that of the 15 semiconductor companies that I cover, Intel's stock performance for the quarter through last night is the third worst (only besting Micron and Actel). Even with the earnings preannouncement, AMD's stock is up 9% for the quarter and Intel's is down 7%. We can talk about risk-adjusted returns and everything, but for portfolio managers who find their performance measured on quarterly and annual returns, this sort of variance is not without meaning. Please, no history lessons - having first covered these two companies over 20 years ago, I'm well aware of their records. It's their futures that I more interested in, and the price that people are willing to pay for those futures. It seems to me that those who are discounting AMD's potential are pointing to the screwups on the K-5 and the K-6 as complete justification for avoiding the stock. I couldn't agree more...if the stock were $50. At a third of that value, it seems to me that only a fool would write off the potential of the Athlon to seriously alter the financial characteristics of the MPU business. - Tad LaFountain