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

To: Scumbria who wrote (66789)	7/28/1999 1:53:00 PM
From: Robert Douglas	Read Replies (1) \| Respond to of 1576975

While chips for these machines carry slimmer profit margins, Intel will benefit because they're cheap to make and in high demand, he said. To which you said: This reminds me of a Saturday Night Live Routine. "We sell below cost, but what we lose in margin we make up in volume". It sounds like the analysts are pumping INTC up for the big dump. The logic is nonsensical. Slimmer does not mean selling below cost. Clearly Peck, who has been neutral on Intel for a year and a half , thinks that Intel is making money in the low end. This makes perfect sense to me! -RD

To: Scumbria who wrote (66789)	7/28/1999 2:19:00 PM
From: kapkan4u	Read Replies (2) \| Respond to of 1576975

<It sounds like the analysts are pumping INTC up for the big dump. The logic is nonsensical.> I think Peck got tired of fighting the rally in semiconductor stocks. A rising tide is lifting some sinking boats. Upon reading the last sentence the INTC faithful are drooling with desire to point out that AMD is such a boat. Scumbria, would it be neat if on August 10th AMD introduces 650Mhz Athlon systems? Kap.

To: Scumbria who wrote (66789)	7/28/1999 2:32:00 PM
From: Charles R	Read Replies (1) \| Respond to of 1576975

Scumbria, <Peck expects Intel to sell more chips as consumers scoop up low-priced and free PCs. While chips for these machines carry slimmer profit margins, Intel will benefit because they're cheap to make and in high demand, he said. This reminds me of a Saturday Night Live Routine. "We sell below cost, but what we lose in margin we make up in volume". It sounds like the analysts are pumping INTC up for the big dump. The logic is nonsensical.> I am afraid there is more logic to the margin/volume argument than what you seem to say. Here is how this works: Let's say Intel's manufacturing cost for Celeron is $30 (probably too high but let's go with that number). Let's add another 20% on top of this for other hidden recurring costs (fractional shipping/handling/sales commisions/ etc.). That makes their recurring costs for the chip at $36. Now, let's further assume that Intel sells these chips at an ASP of $70 for the next quarter. That means that Celeron's contribution for Intel's overhead is $34 ($70-$36) per chip. Let's assume that Intel has to allocate $300M of overheads (fixed costs) for the Celeron line each quarter. In this scenario, Intel wouldn't make a dime on celeron until they ship about 9Mu ($300M/$34). But, after that for every chip Intel ships they make $34. The reason AMD can't make money is not because of the cost structure, as most analysts say, but because they have not hit the ASP*Volume point on the profitability curve that creates a profit. There are two ways to get out of this - Increase the ASPs and increase the volumes. From the manufacturing and P&L perspective, the first alternative is far superior than the second one. But, from the perspective of a stable long term player, one needs to build the volume aspect too. And, that is the case for the Dresden fab. What is unknown to most analysts who follow these stocks is that AMD has extremely competitive cost structure (may actually be superior because of the smaller die and lower fixed costs). If AMD had as much capacity as Intel, and if AMD sells as many units as Intel sells, they could make money even on the K6-2s but AMD does not have the capacity to build as much and hence the red-ink. This is a simplified analysis but should make the point. Realization and exploitation of this low recurring cost and high fixed cost business model is what made Intel and Microsoft so successful. The name of the game is volumes - good players over the long run will have comparable recurring costs and fixed costs - the winners are the ones who realize this early and gain the market share to build and sustain a massive strategic advantage. Chuck