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To: Dave who wrote (153459)	1/2/2002 12:42:09 PM
From: GVTucker	Read Replies (2) \| Respond to of 186894

Dave, RE: market share This reminds me of the great debate that was going on when I was in business school in the Dark Ages of the 80's. Back then, of course, everyone thought that the Japanese system was the King of the Hill forever, just like some who live in Silicon Valley think that the world can't survive a 50% decline in the price of Intel's common stock. One of the tenets of this Japanese model was that market share was the key, as long as you focused on market share then the profits would eventually follow. Back then, of course, an American manager focused on profits in addition to market share was just too short-term oriented to compete in the new global economy. I thought that this notion didn't make sense. Particularly absurd to me was the thought that market share based upon price could be retained even when prices rose. We now see a lot of those flaws in the Japanese model. One of those flaws is the notion that profits could be ignored as long as losses were made in the pursuit of market share. Everything is different now, of course, but everything is the same, too.

To: Dave who wrote (153459)	1/2/2002 3:28:25 PM
From: AK2004	Read Replies (1) \| Respond to of 186894

Dave re: can be examined using the profit margin to P/S that actually speaks in favor of amd in spite of recent losses. Any measurements taken out of equilibrium are misleading at best and price war is hardly equilibrium. But given that chip is "fixed cost" business it is not very hard to guess the sign of d(margin)/d(P/S) Regards -Albert

To: Dave who wrote (153459)	1/2/2002 7:49:18 PM
From: Dan3	Read Replies (2) \| Respond to of 186894

Re: Damodaran on Valuation Market share when there are multiple competitors is very different from market share when there exists a near monopoly in an industry, particularly an industry with very large economies of scale. Consider that Intel presently has about 3 times as many units across which it can allocate fixed costs like CPU and chipset development. The amazing thing is how much higher Intel's costs are than AMD's, when economies of scale should make it the other way around. During the first 9 months of this year, Intel had R&D costs of $930 million, while AMD's were $161 million. Yet AMD beat Intel to copper, AMD is well ahead of Intel on SOI process deployment, and AMD's R&D people were able to figure out that DDR was the way to go while Intel blundered down the Rambus road for a long, long, time. AMD's R&D costs include the costs for developing flash technology for FASL, new industry standards like Hyperlink, and some netwoking costs for their networking divisions. AMD is presently developing multiprocessor platforms, mobile platforms, embedded processors, and (of course) desktop platforms. Certainly Intel has larger networking and chipset research operations, but they don't seem to have any more CPU development going on. It's pretty hard to see where Intel should be spending more than twice what AMD spends on R&D, and if the market share of the two companies gets much closer, Intel will have to start cutting back. Pick a number for what R&D isn't for CPUs, but then remember that AMD has about as large an R&D effort for flash as Intel, and some work going on for networks and chipsets, too. If (you pick your own numbers) $61 million of AMD's R&D is non-CPU, and $230 million of Intel's R&D is non-CPU, then Intel CPUs should be allocated $700 million in costs while AMD's should be allocated $100 millionn for the 9 month period in the most recent SEC filings. If 100 million CPUs were sold in that period, and Intel has 87% market share, then chips from both companies have the same R&D costs (of $8). But if Intel had a 77% market share, then AMD's costs were $4.35 per chip, while Intel's were $9.09. Now do the numbers for general and administrative costs, which are $1,064 for Intel and $151 for AMD. The direct, variable, costs of producing a CPU are the source of endless debate, but are in the range of $15 to $35, so you can see that a $10 difference in overhead costs is quite important. Remember, this is completely without FAB capital costs or production costs just costs that will be fairly constant regardless of the number of CPUs produced. Now figure in the fixed costs of the FABs (which debate I'll avoid right now, but is also a fixed cost in the short term), and I think you'll see how very important market share is for these two companies. Look at the Intel dream scenario - what happens to AMD if intel can knock them down to 10% market share? Dan