Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: Sarmad Y. Hermiz who wrote (189530)	3/13/2006 2:20:20 PM
From: Petz	Read Replies (2) \| Respond to of 275872

re: In my opinion 5-10% across the board [Intel price cut] will be more than enough. Such a price cut would reduce Intel's revenues by almost as much as the price cut, without reducing expenses at all. (Some OEMs might buy the next highest speed grade, that is why revenues don't drop quite as much as this hypothetical "everything" price cut. So a 10% price cut would cause Operating Profit to drop by 7% of $9.5B. That's $650M and $0.09 of eps after taxes. Considering that the average estimate is only $0.23, that's quite a penalty to pay, don't you think? Will OEM's cut prices by the full amount of the price reduction? No Will a $10 drop in PC price stimulate demand for Intel-based PCs? Yea, probably 1/2 of 1 percent. Will HPQ or another OEM change their Intel/AMD product mix as a result? For that tiny difference, no, and it would take them 6 months. And your average Intel $140 CPU (after $10 ASP cut) will still be quite a bit outperformed by your average AMD $100 CPU. Petz

To: Sarmad Y. Hermiz who wrote (189530)	3/13/2006 2:28:29 PM
From: titon1	Read Replies (1) \| Respond to of 275872

I'm afraid it's much more than 10%. From what the analysts are saying and if these reports have any truth in them is more like 20-30% price cuts. "Early this year, intc cut highend cpu price. the cut extended to low end as well. Q1 is seasonal for both NB and MB. intc offers 20-30% discount to big OEMs and upto 50% to Dell. expect crossboard system price cut soon." investorshub.com

To: Sarmad Y. Hermiz who wrote (189530)	3/13/2006 3:05:45 PM
From: AK2004	Respond to of 275872

re: In my opinion 5-10% across the board will be more than enough 5% reduction in cpu cost would hardly put a dent on overall system cost and hence would not upset demand even if amd would not cut prices at all. No, we are talking about large cuts this time around, IMHO -AK

To: Sarmad Y. Hermiz who wrote (189530)	3/14/2006 12:23:43 AM
From: pgerassi	Read Replies (2) \| Respond to of 275872

Dear Sarmad: The price of CPUs are inelastic. Change the price a lot and demand doesn't change much. To sell 10% more CPUs require prices to be cut in half, at least. In servers, even if the CPU price is cut in half only reduces server prices by 5%. From AMD's lawsuit, you can see this where Intel sold from 90% to 100% for practically nothing. There Intel figured that it takes a 100% price reduction to force a 11% increase in sales. They were right as there appeared to be many takers. So now here you are thinking that a 10% price reduction is going to sell those 10% over supply of weak CPUs. Fat Chance! It takes Intel a 33% reduction in price across the board to sell at parity. Since many sales are in the server/workstation and high end desktop that they can not get anyway, the reduction has to be larger in the low and middle desktop and mobile spaces. In essence to hurt AMD ASPs of their better performing products, Intel would have to cut their prices in half and that is before any penalty for being tough on the customers before. That will likely need another 10% or more reduction. Granted, Intel is not going that far yet. They are about reducing prices to be at overall parity with AMD. That is going to slice their revenue by 1/3rd in their CPU division, effectively losing all of their so called profits. Lets look at it from a GM POV. Their GM lately is about 55% which means that their costs are 45% of their revenue. Now cut that revenue by 1/3rd. Thus the gross profits are about 22% of 67% or a GM of 32%. That is effectively no profits before dividends, stock buybacks and stock options. After them, its a loss of $1-2 billion depending on how much they buy back their stock. That is per quarter. What would their price be after an EPS of ($0.08) to ($0.24)? Quick drop to their book value of $3-4 a share. And that still leaves AMD with $100 ASPs where they are making $0.50-1.00 a share per quarter by selling all they make from Fab 30, Fab 36 and Chartered. And NGMA wouldn't make a dent for at least 4 quarters until they can make more than 50% of overall production while waterfalling the prices of the older ones. Thus in Q4, Intel's ASPs will still be dropping and AMD's may fall, but be more than made up by the large increase in capacity. I don't think that Intel will be able to hold down pricing due to a shareholder revolt for as much as one quarter. One quarter of losses will remove any cachet to the stock, hurt share prices for years and reduce institutional holdings for even longer. Current Intel shareholders are quite risk adverse. Losses will make many of them go away forever. Those that stay will require lower multiples to earnings. Before any of that happens, I'm sure that heads will roll in upper management. And perhaps that is what was needed in the first place (as long as the right heads roll). Pete