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

To: Charles R who wrote (66794)	7/28/1999 2:54:00 PM
From: Kevin K. Spurway	Read Replies (2) \| Respond to of 1577024

Re: "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." ________________________ What exactly do you mean by "overheads (fixed costs)"? If you're talking about G&A and sales and marketing expenses, you should know that these aren't fixed at all, but are to some extent proportional to revenue. If you're not calling these expenses fixed, then where does your analysis take them into account? For that matter, where does your analysis take into account the portion of current R&D expenditures that those Celeron revenues need to carry? I wouldn't be at all surprised if (allocating reasonable levels of G&A, S&M, and R&D to the Celeron line) the Celeron product line was running at something less than breakeven. That being said, there's not much the competition can do about it--it's just, as they say, tough cookies. Of course, if competition with a superior cost structure does emerge, Intel is positioning itself to bleed. Kevin