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Technology Stocks : Intel Corporation (INTC) -- Ignore unavailable to you. Want to Upgrade?

To: TimF who wrote (184039)	4/10/2006 10:16:27 PM
From: Sarmad Y. Hermiz	Read Replies (3) \| Respond to of 186894

>> The actual cost reduction per chip is only $3.34 on a chip that they sell for $140 >> The number can be off without invalidating the point as long as the relationships between them aren't too far off. I think your starting assumption numbers are way too far off. Intel's gross margin was 60% in in q4. That means the ASP of $150 has avg variable cost per chip of $60. When you add in all other costs (except income tax), the cost is $113/chip. So profit per chip (excluding tax) is $37. The numbers for Intel are polluted by inconsistent treatment of flash. Same calculation for AMD (exclude flash): ASP=$100. cost=83 pre-tax profit=$17/chip. A cross check is that AMD made $240m profit in q4, from selling 14m chips. --------- This calculation gives a more realistic view of how much each company can cut prices before entering into a true loss from ops. If Intel cuts its prices across the board by $18/chip, it would still make half its '05 profit, which will be over $4.4B after tax. If AMD had to match the cut by an equal $18/chip, it would be in the red. I am sure there are flaws in the above. I think it is a reasonable start for evaluating the ability of each company to survive a price battle.