Ok, I'm going to try to formulate this rebuttal....
My original comments will be bolded and italicized
re: As investors expecting GMs for company A to be 60+%? Are investors expecting GMs for company B to be 40%?
in the ideal world the value of the company depends on future (distributable) earnings expectations. In reality those expectations are replaced but short term outlook which would make gm important.
Of course, no one is going to disagree with you there; however, the point I was trying to make is what are the expectations of a company at that respective point in time. Are investors "pricing" in 40% GMs for Company b or -40% GMs for company B? Same goes for company a.
re: I disagree with point 6
I do not want to argue the point since it is almost impossible to get real cost info for any of the companies but some believe that they are lower ( at least on fab side)
Fair enough, however one thing to consider is to add the depreciation expense to the Cost of Goods Sold, then recalculate GMs. Of course, that percentage includes economies of scale, but it is the best one can do with the limited information. If I get some time, I'll try to do that for you or, hell, take the initiative and I'd love to see those results; deal?
re: you are assuming that company b can supply that delta in market share.
no but it is reasonable to assume that company b would go to greater length. If company a would loose market share it would have to sacrifice gm in order to get it back. There would be little difference in unit shipments and hence depreciation for company a one way or another. Company b, OTOH, would loose revenue plus considerable % of the units. And units are important for depreciation of the fixed cost.
For the basis of this discussion let's just assume company a is INTC and company B is AMD? (I think we both can agree to this).
I am going to tell you why I do not believe AMD can solely supply any additional market share. I believe that AMD's FAB(s) is(are):
1) Capacity constrained; or
2) Running at less than optimal efficiency.
My rationale for this argument is supported w/i AMD's Inventories. Sequentially, AMD's Revenues increased ~24% (Q3oQ4), however AMD's Inventories dropped ~15%. Therefore, AMD sold units from their Inventory. During that period, AMD did not "write down" their inventory.
Now, if point 2 is the reason for the decrease in inventory, the question becomes: Are yields down, or Just no demand? If there wasn't enough demand to keep the fabs running efficiently, then AMD might have the ability to take additional market share (as long as the overall market does not grow), however what if the answer is that yields are down?
Now, let's assume that the FABs are running at capacity, which could make some sense given their recent foundary deal, both of us can recall Cyrix and Nexgen. They outsourced their production and their GMs were not that great. Therefore, if AMD outsources a portion of their uP business, expect AMD's GMs to drop overall. Additionally, AMD may be less likely to wage a price war since technically their foundary has already been paid for, however when one outsources their production, the other foundary expects to get paid up front (typically).
While depreciation can be calculated as a %age of units, typically, its done straight line over a period of years.
re: History should teach us many lessons about the price war between AMD and Intel.
one important lesson that history teached us is that to be careful with the assumptions that are based on small data set.
I'm viewing this argument from a time frame since 1995 which has covered multiple generations of uPs. Therefore, I do not "perceive" that I am using a "short" time frame. Additionally, any time frame would be short compared to the creation of the earth (this comment was made tongue in cheek).
Since 1995 and prior to 1995, we have seen the uP market evolve to many competitors, i.e. Cyrix, Nexgen, IDTI, Texas Instruments, IBM (Cyrix Clone), AMD, Intel, etc. etc. etc to basically two for x86, AMD and Intel. (Not including Transmeta, sorry). And I believe that we have plenty of data points.
re: Look at this ratio Total Debt/Equity.
that really does not matter much, no matter what financial books tell you. If company is starving for cash then
it is an important consideration but otherwise it is likely to be accurately priced in share price. We have no indications what-so-ever that amd is starving for credit
The Debt to Equity Ratio measure the amount of leverage a company is utilizing. Leverage is not bad, but too much leverage can kill a company. I believe that Intel can "tap" the debt markets alot easier and at better terms than say an AMD.
Well, AMD may not be "starving" for credit, but one comment, why did they float more debt than what was necessary? AMD's debt load is increasing, not staying constant. Of course, interest rates are low at this point in time.
To summarize, leverage isn't necessarily a bad thing; too much leverage is a bad thing and if the money you borrowed is "pissed away"; your screwed.
re: Additionally, remember, one cannot compete on price alone. This has been shown time and time again.
agreed and over the past few years amd showed that their rad map is at least as reliable as intel's. 3 years back road map execution was on the tongues of every analysts but it seems not an issue anymore
No real opinion; however can I use this comment against you if you bring up that the Itanium was in development for years and was late? <gggggg>
re: using a price war to take market share is essentially "cutting ones nose off to spite their face" and its very expensive.
it is not completely true, while price war is a loose-loose for intel since they own the market it is not the same for amd since their share used to be 5%. Simple illustration, when amd's share was 5% amd was loosing money on cpu business. Since became much more profitable for amd even though that the pricing structure did not improve much.
And, at 20% market share, AMD is loosing money. The fact of the matter is that AMD needs to increase their ASPs, not decrease them. How about an example? Remember when AMD had the K6-x and Sanders stated that the K6-x would be priced 25% below a comparable Pentium class chip? Do you rmember what Intel did? They priced the Celeron chip at about the same price as the K6-x. So what happened? AMD was forced to cut the price of the K6-x again. I think AMD has had only one year where they made money.
re: I personally believe that AMD is a "me too" type of company
it is really irrelevant but for the sake of the argument it seems that amd introduced 3d before mmx, reached 1GHz before intel, developed HT, support for ddr, etc
I think you might be a little incorrect, the K6 incorporated MMx technology. Later on, AMD developed 3DNow. However, MMX was developed first. As for the 1GHz chip, ok. HOwever, Intel has a 2.2Ghz chip now. AMD is relying on that PR rating. I think that is a bad move.
As to DDR, Intel (unforunately) supported Rambus to the very end. Intel still has DDR chipsets; its not like Intel is on a deserted island with Rambus. As for HT, isn't Intel incorporatign that technology into their chips? What about AMD?
re: AMD must find ways to differentiate their product offerings from Intel.
that is how? Be getting out of processor market because otherwise their products are very different
No, I'm not suggesting AMD get out of the uP market; how about a Media GX type of processor?
re: If AMD continues being "bi-polar" in their corporate strategy, I, for one, do not forsee AMD being a viable company.
hey, you got into early 80's (before I went to college) topic of diversification. Company does not need to be diversified as long as investors are not mislead.
As far as viable, the 1st time I invested in amd was about 5 years back when amd went below $3-$4 split adjusted when analysts uniformly concluded that amd was not viable and likely to go under in less than a year
Ah, those were the good olde days. Remember when AMD had that K5 and Compaq was going to sole source with AMD? Back the, both the CEOs of Compaq and AMD hated Intel. Out of pride, he choose AMD. Well, remember what happened?
AMD dropped the ball with respect to the K5 and their K6 design was from hell. AMD bought out Nexgen and had to re-design the K6 to work with the Pentium pin out. Lastly, most of the "talent" from Nexgen is long gone. Quite a shame.
Then there were rumors that AMD was going to go under. Why? B/c they had way too much debt and their revenues were declining. Then rumors started to surface that IBM was going to buy AMD out and given that an executive at DLJ sat on AMD's board (at that time) AMD was able to re-float their debt. Problem solved. |
