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

To: gvatty who wrote (247756)	2/13/2008 6:17:32 PM
From: wbmw	Read Replies (2) \| Respond to of 275872

Re: Wbmw, the theory exists, but it doesn't work with a monopoly. What you don't understand is that elasticity doesn't matter to a pure monopoly. Even in a pure monopoly, price elasticity exists for all non-essential products. You need water to survive, so it's an example of an essential product. If your water company had a 100% monopoly, they can charge whatever they want, because you would have to pay it in order to live. Microprocessors are not essential products. Raise the prices too high, and some people will choose their heat bill over a new PC. That is an example of price elasticity. Demand goes down when prices go up. In fact, microprocessors are quite non-essential because almost every household in a mature market has at least one of them. Hypothetically, most households in America - a 1st world country - could not afford to spend $10,000 on an entry PC. And why would they essentially pay the entry price for an automobile for something that they most likely already own? Or let's be a bit less extreme. How many people would pay $1000 if that was the price of an entry PC? A lot more than the top example, but probably not the percentage of Americans that depend on Welfare and fixed incomes. They might be able to afford a $400 PC, though, and that's why Best Buy and other retail shops can't seem to sell enough of them. So I'm sure you'll say, what if Intel only rose prices by $50 (meaning entry Celerons at $85)? Well, it would probably still enable $400 PCs (barely), but it would tend to hurt the opportunity for $300 PCs, which are now enabling even more prospective buyers - especially in emerging markets. Intel has learned that the best way to grow their business is by expanding the Total Available Market, or TAM, and that requires ever lower prices. But Intel is not dumb. They don't want to take their Core 2 architecture and drive it down to $20 price points. That's why they developed Silverthorne, which could reach $20 price points and still make a helluva lot of margin. If AMD took a Brisbane core down to $20 to compete, they'd probably have negative margin on it. But I digress. You have a hypothetical 100% monopoly situation. Something I think is unrealistic, but I am trying to argue on the basis of price elasticity, which for non-essential products is never a trivial consideration. At some point, raising prices breaks demand. Maybe small increments are ok, but those should come along with added value. For example, Nehalem may allow Intel to raise prices a bit, but short of a shocking new product line, I believe raising prices on existing parts can only have disastrous effects to Intel's revenues, and that's precisely why they haven't raised prices with Penryn.

To: gvatty who wrote (247756)	2/13/2008 6:22:36 PM
From: chipguy	Read Replies (3) \| Respond to of 275872

Wbmw, the theory exists, but it doesn't work with a monopoly. What you don't understand is that elasticity doesn't matter to a pure monopoly. The monopoly can dictate the demand. The monopoly can make 10,000 units of an item and charge $1 per unit to gross $10,000, or it can make 1,000 units and charge $10 per unit to make the $10,000. What a load of horse excrement! Of every 100 processors Intel will sell this quarter perhaps 1 will be from unconditional demand - replace a broken down PC in the first world. Most of the demand, maybe 70 to 80 processors, are for entirely discretionary upgrades of existing systems in the computer saturated first world nations. If Intel doesn't offer ever more compelling and cost effective products the upgrade market sits on its hands and Intel doesn't sell processors, AMD or no AMD, monopoly or no monopoly. It is a computer upgrade, not oil or food. The remaining 20 to 30 are for new PC users mainly in the developing nations. However these markets are extremely cost sensitive and again Intel has little pricing power. Folks in third world countries lived and worked without computers for a very long time and will easily continue to do so if Intel could and did choose to price entry level processors out of their reach. The idea that without AMD as competition that Intel could exert monopoly pricing power over the x86 market given its inherent composition and nature today is delusional raving. If AMD disappeared tomorrow and Intel doubled its prices it would sell perhaps 80% less processors and take a huge hit in revenues and profits (fixed costs, ever heard of them?)