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

To: hmaly who wrote (75402)	3/23/2002 11:42:41 PM
From: pgerassi	Read Replies (1) \| Respond to of 275872

Dear Hmaly: Capex costs for Intel are needed to replace hardware that becomes either worn out or obsolete. Depreciation is due to the government not allowing expensing of capital equipment 100% outright and the allowed schedules are longer than the equipment becoming obsolete. Thus depreciation is lower than the real amount needed. What tends to happen is that a large inventory of depreciating hardware (read expense) that fails to generate enough revenue to offset it and it also inflates the book value of the firm over the actual value. The truth is that Intel may need to spend more than you think to keep up with a quick good competitor. Yet, this overhead of fixed costs for Intel is much higher per unit than AMD. And to make Intel's total (fixed and variable) cost less than AMD, a certain volume must occur (assuming that Intel's variable costs are less than AMD's). Even if Intel had the entire current market, which it does not, it still is not enough to get Intel's costs below AMD's. And it still gets wider as the total market shrinks or Intel's share declines and even if Intel had the whole market, it still would have to charge so much due to fixed costs that AMD would get some business and cause Intel to spiral down. As to those expensive Xeons and Itaniums, well the later doesn't sell enough to cover its fixed costs much less subsidize any others and the former is beginning to slide backward as AMD rises. When Hammer comes out, these high priced Xeons either will get much cheaper or much fewer. Dual Athlon MPs already take dual Xeons and most quad Xeons and leaves them coughing in its dust. And Hammer will pound them into more dust (pun intended) unless the price drops to 10% of what it is now. Forget about those "subsidies" working then. Itanium already has the market walking away in droves. If Xeons follow suit, Intel's in a world of hurt. If Intel drops the price to sell enough of them to turn some kind of profit on them, their profits turn to losses as the other subsidized lines have to stand on their own. This is Intel's nightmare scenario and it is coming closer rather than going away. Their only real hope is for the market to stage a strong resurgence beyond almost anyone's wildest dreams. Pete