Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: that_crazy_doug who wrote (48195)	7/18/2001 10:03:55 AM
From: Neil Booth	Respond to of 275872

I listened to the Intel CC. It was not very encouraging. Bryant mumbled his way through the whole CC, he was barely audible. I guess he was afraid that if he were clear about something it might bring some unwanted clarity to their press release and accounts. Otellini was very evasive; his favourite phrases seemed to be "we're not in the business of ...." and "something like that" and other phrases that avoided answering the question. When someone pushed him on the questions of AMD and pricing, he basically clammed up and said "I'm not sure I understand your question". Were I a shareholder I wouldn't be reassured; it was abundantly clear they were hiding things.

To: that_crazy_doug who wrote (48195)	7/18/2001 10:57:54 AM
From: Dan3	Respond to of 275872

Re: Many people said that about Q2 The magic for Intel has long been the mid range chips it built at very low cost then sold in the millions for corporate desktops and mobile systems. That's ending with the current transition. A lot of corporate buyers have (probably without quite realizing it) continued to pay $150 for PIII chips for desktops and close to $250 ASP for mobile parts. Intel has only one core for mobile parts, near term, and will have to cut prices as it faces up to the sudden competition from AMD. On the desktop, bulk corporate buyers will continue to buy Intel, but Intel's costs will be quite a bit higher - while ASPs will likely continue their decline. There have been pretty clear indications that the actual cost to produce a wafer is about $2,000. You need to get quite a bit more than that for its chips to cover the cost of building the plant (depreciation), packaging and testing, marketing and administrative, but the bottom line is it starts at about $2K. So the raw marginal cost of PIII is about $10, while the raw marginal cost of P4 is at least $25. If 10 million PIIIs are replaced by 10 million P4s, material costs go up by $150 million. It takes (very roughly) twice as many FABs to produce the same number of parts, so some allowance must be made for a doubling of plant costs. If $x million of the value of a FAB is actually "used up" each year (regardless of what accounting rules force us to use as a value), what must be allocated to each chip? Intel used some percentage of the output of about a half dozen plants last quarter to produce about 28 million chips. If their average, quarterly FAB costs were around $900 million with the PIII core (as opposed to the $2.4 Billlion they've been spending each quarter recently) it works out to about $28 per PIII core. They do produce some other parts in those FABs, but lose tons of money doing so, so the CPUs must cover the cost of the FABs. Moving to P4 more than doubles the FAB capacity needed, so it seems reasonable to say that $56 should be allocated to the cost of each chip for FAB use. On 10 million parts that's an additional $280 million. Even if desktop ASPs don't drop any further (which flies in the face of all reason and experience) Intel is out $430 million for replacing PIIIs with P4s. I don't see why it should cost any more (or less) to package and test a P4 than a PIII, nor why marketing and administrative costs would differ, so I'll leave those out. The mobile market will see Intel flat out lose 1 to 2 million units in sales. The remaining 8 million plus or minus units (if notebooks are 30% of 35 million sales) will likely see their ASP drop from $250 to $175 (WAG) or $600 million. Add to that the loss of $250 million to $500 million for AMD sockets gained, and the total drop in revenue for Intel can be estimated at $1.4 Billion to $1.5 Billion for Q3 vs. Q2. That assumes no growth in unit demand, but no drop in desktop ASPs either - I expect we'll see a little of each, but that they'll likely offset each other.