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

To: Joseph Pareti who wrote (144855)	10/7/2001 10:55:51 PM
From: Dan3	Read Replies (4) \| Respond to of 186894

Re: The 1.2GHz Celeron lists for $103 Nice to know that a $7.5 Billion dollar investment in .13 FABs has let Intel get such high ASPs for their newest parts. What do you suppose Dell is paying? $50? And HP/Compaq is probably paying $60. The .25 Aluminum Duron will face serious competition from the .13 copper Celeron. But AMD has depreciated Austin down to just about $0. AMD can maintain platform share and market share selling Durons for $25 to $30 and not lose money. In current markets, the part of a FAB that stands a chance of producing parts that command a premium over variable costs loses about 3/4 of its value in the first year and the rest in the second year. To stay leading edge, each FAB's $1 Billion worth of steppers, etc. used by .13 Celeron will have to be replaced in 12 to 18 months. If they produce 40 million saleable parts in that period depreciation costs alone will be $25 per chip. If they can ship 60 million good parts in 18 months per FAB, depreciation per chip will be about $18. Actual manufacturing, packaging, and testing will probably account for another $15 to $20 (Celeron on .13 is a very small die and must be cheap to make on .13, or will be once they get steppers that require phase-shift masks. Right now, those prices mean Intel is hemmorhaging money, but new steppers will fix that). Please note that I'm talking about real, physical, depreciation here, not the accounting depreciation that will let Intel defer the costs of those FAB investments and making it look like they're not losing money short term. But the drop in value of an 18 month old FAB invesetment compared to the current generation is very real, whether or not that drop is accounted for. Intel wouldn't be Intel if they didn't offer a generous advertising allowance (and they'd lose a lot of sales to Duron, too) so they're probably offering something like $20 a chip in co-op. Intel's margins on Celeron at $55 are about the same as AMD's margins on Duron at $25 - not enough to stop Celeron, but enough to keep AMD very much in the low end game, and without any additional capital investment, and without losing money. One of the best accouting professors I had always said that if you're looking at a capital intensive industry, look at balance sheets and changes in the balance sheets and ignore the income statement - the income statement is so easily mainipulated by depreciation decisions that it rarely reflects what's actually going on in the company.