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

To: wanna_bmw who wrote (141084)	8/8/2001 7:12:47 PM
From: pgerassi	Read Replies (1) \| Respond to of 186894

Dear Wanna_bmw: Intel put out rosy assumptions for their Q2 CC forecast. Units growth in high single digits because return to seasonality in sales, ASPs about flat, etc. That is not what is going down. P4 sales are anemic. To combat this they are cutting P4 ASPs to almost half their current levels. To get flat revenue, you need to sell 2 times as many P4s while maintaining unit sales in all other areas. Since that is very unlikely, you need far more than twice to make up for lost P3 and Celeron sales on the low end and Xeon sales on the high end. This is extremely unlikely unless there is a surge in demand. Now if this surge in demand does not pan out and there are no signs of it so far, revenue must take a hit. If you are selling more chips, costs go up as P4 is more expensive to manufacture than P3 or Celeron. If you are not, ASP falls dramatically and profits become losses. A $8 drop in ASP with no units increase yields zero profits by GAAP. If P4s were about 2 million units in Q2 out of about 27 million, that works out to a P4 ASP drop of $100. If the basis is 4 million, $50 drop in P4 ASP. This is in the range for the August price drop. If the drops happen in September as planned, Q3 will have GAAP losses. If any unit gains in P4s are offset by corresponding losses in P3 unit sales, Profits go down because P4 is about twice the cost of P3 and in many cases P3 will fetch a higher price by the plan. Now profits take a double whammy, ASP drops and cost per unit rises. For a changeover by 6 million units (8 million P4s overall), a $40 decline (ASP - ACP) would cost an additional $240 million in profits. Now GAAP losses might be high enough to make Pro Forma losses as well. There is much downside for Intel with this strategy compared to little upside. Pete