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

To: Rink who wrote (217547)	11/23/2006 11:06:13 AM
From: Sarmad Y. Hermiz	Respond to of 275872

>> Do you realize that it would mean no separate categories for those rather different product lines in the Segment Information? It is possible AMD will report the detail (not just revenue, but margin and profit) for different segments. It may even be likely. Especially if their plan toward broker analysts is to say: give us some time to make the graphics business as profitable as the processor business. That has the advantage of show-casing the processor business. It has the disadvantage of emphasizing how dilutive, and possibly negative the graphics business will be at first. Remember that ATI did make a profit - maybe $200m in their best year, one time in 10 years. But the cost of capital ($5.7B at say, 7.5% annual) is $420m. These are not all cash expenses , of course. But they bring about reduction of AMD cash (making it necessary to borrow for fab expansion), plus share dilution. The cost of borrowed cash will be $3.2B x 0.075 / year. That's $240m/year. Reason I use $3.2B instead of $2.5B is that $700m will be borrowed in Europe for fab expansion. That would have come from AMD cash, if it wasn't spent on ATI. So, the ATI aquisition will reduce earnings by about 7c/share. And will dilute AMD's processor profit EPS by about 12%. That's another 15c in first year. How analysts choose to treat these issues is beyond what I can guess right now. Maybe they'll give AMD a pass for a quarter ot two, or maybe they won't. I think much will depend on how well the 65nm production is going, and what AMD says on Dec 14.