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Technology Stocks : Advanced Micro Devices - Moderated (AMD) -- Ignore unavailable to you. Want to Upgrade?

To: Petz who wrote (34825)	4/4/2001 2:45:45 PM
From: Scot	Respond to of 275872

rich&fam, "Clearly, AMD has more flash capacity than they can sell, else they would merely re-sell the devices targeted for Alcatel and avoid a stinky mess. Instead, they entered into a law suit with a customer - a real sticky issue." How do you know they didn't resell Alcatel's allotment? Sell their allotment and then sue them for not taking it. I like that strategy! :-) Actually, if my memory serves, a party such as AMD would have an obligation to mitigate damages if Alcatel was in breach of the contract. So it is likely that they did sell the flash with one possible damage calculation as the difference in price. As I mentioned earlier, there is another concept known as "efficient breach" where a party decides it make better business sense to breach the contract rather than perform. If we consider the significant drop in spot prices, it is probably not unreasonable that they choose to breach. Obviously doesn't help their reputation, but if there are other financial issues, they may have decided it was the best move. -Scot

To: Petz who wrote (34825)	4/4/2001 4:14:34 PM
From: survivin	Read Replies (2) \| Respond to of 275872

re: then sue them for not taking it Hi John, As someone mentioned here earlier, AMD has no choice but to resell any contract allotment refused by alcatel as an inherent duty to mitigate damages, which is implied in all contracts. If the contract price is $20 and amd is able to sell for $10 the only breach damages are $10 -- no more. If AMD refuses to mitigate, alcatel will be released from all liability. However, they only need to make a good faith effort. There is also a concept where any sales which could have been made from AMD's inventory roll rather than alcatel's scheduled allotment does not invoke a mitigation duty. Correct me if I'm wrong, but when AMD was signing a flurry of supply contracts they required a substantial cash downpayment from their customers. This was mentioned during a conference call and evidenced by the rapid rise in AMD's cash position -- out of line with their quarterly earnings. This may be important as it would suggest AMD is holding alcatel's deposit, willing and able to apply it to cover any shortfall resulting from alcatel's breach. This would include of course both below contract resales and those which remain unsold and stockpiled. I'm wondering if this is why AMD has stated no effect on quarterly earnings from the breach. AMD's management were very shrewd to insist upon these hefty deposits especially when they were foregoing current earnings spikes to ensure a steady income stream in the future. As for those who find their suing of a customer odd and dangerous, think of the implications of allowing non performance to continue. First, failure to insist upon performance may be deemed a waiver destroying their ability to enforce future commitments. Second, other contract customers would line up like cattle seeking to modify or even break their contractual duties. Basically a lose/lose situation for AMD. They would have given up huge revenues during the boom and now receive at or below cost prices due to the oversupply pouring out of their factories. Shutdowns, furloughs and layoffs would be likely and we would probably see a share price in the low $10s or worse. That is why these contracts must be enforced. Good job AMD.

To: Petz who wrote (34825)	4/4/2001 4:31:20 PM
From: richanfamus	Read Replies (2) \| Respond to of 275872

John - Your comment - "How do you know they didn't resell Alcatel's allotment? Sell their allotment and then sue them for not taking it. I like that strategy! :-)" Shows that you haven't the simplest grasp of common business practices. If you can ship product - cancelled by one customer - to another, you do it and go on about your business. You don't air your dirty laundry - and publicly issue a Press Release that you are suing your customer. Yet you AMD enthusiasts keep playing both sides of the street. You profess AMD has a lock on its customers by virtue of a flash memory product unique to AMD - then you toss out the simplistic idea that there is a deep lineup of customers-in-waiting ready to buy these "unique" devices from AMD. That scenario doesn't pass muster. Rich