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Technology Stocks : Intel Corporation (INTC) -- Ignore unavailable to you. Want to Upgrade?

To: semiconeng who wrote (133841)	5/1/2001 4:29:48 AM
From: pgerassi	Read Replies (1) \| Respond to of 186894

Dear Semiconeng: The equipment is paid for. It is depreciated to near zero. It does not matter if it breaks, its all gravy as long as marginal (variable) costs are paid for. But, what if the equipment is only used in the high margin process for a short time? Does the last CPUs of a process able to pay for a cutting edge equipment in time? When people are screaming for CPUs, this can be buried by delaying the switch to a lower margin product. But this changes in a low unit environment typical in a overbuilt situation. If units go down 20%, the fixed cost portion goes up 25% on each CPU sold. In an inelastic market, like oil, such value crashes are very painful. You have to shutter the wells. But that equipment still has to be maintained and it continues to depreciate. Yes it is great when things are going well. But it is very bad, when things are not going well. All of the unit losses in Q1-01 were Intel's as AMD actually increased unit sales. Its a double whammy, ASPs go down as costs rise for each CPU sold. Intel's profit went down 87% for a 20% or so decline in revenue. Another 5% decline in revenue and profits per GAAP become losses. Another 10% and even excluding acquisition costs would not help. Pete