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To: AK2004 who wrote (148668)	1/21/2005 2:46:10 PM
From: dougSF30	Read Replies (1) \| Respond to of 275872

I didn't mention fixed costs. I said GM does not include R&D nor advertising.

To: AK2004 who wrote (148668)	1/21/2005 9:00:10 PM
From: Petz	Read Replies (1) \| Respond to of 275872

AK, re:<Are you sure about GM not including fixed costs?> At risk of repeating someone else, gross margin DOES include depreciation, which is a relatively fixed cost. In the long run, though, depreciation is proportional to the fab space you have to build and the amount of equipment you have to put in to it. So it makes sense to apportion depreciation cost PER CHIP to the fraction of production capacity that is required to produce that chip. THEREFORE, the depreciation PER CHIP to produce a 220mm chip is 2.75 times as large as to produce a 110mm chip, based on Elmer's GDPW numbers. If Intel were to convert ALL their manufacturing to dual core, they would need one heck of a capital spending plan! 0.7*$1,140M depreciation/43M CPUs comes to $19 per CPU. Assuming Prescott is an "average" CPU, the incremental depreciation cost of dual core is $33. Petz