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To: Ali Chen who wrote (3690)	1/12/1998 3:49:00 PM
From: greg nus	Respond to of 6843

Ali chen, thanks for the quantification on the Intel inventory backup. The Intellafelons won't understand the implication. Intel to $50.00 next 90 days!

To: Ali Chen who wrote (3690)	1/12/1998 4:51:00 PM
From: Paul Engel	Read Replies (2) \| Respond to of 6843

Ali - Re: "3 million unsold CPUs even at $100 ASP represents $300,000,000 loss" At the end of Q3, Intel reported a Finished Goods Inventory of $401,000,000. This 3,000,000 CPUs, even if valued at $100/each, represents a DECLINE of 25% in Intel's FGI - ignoring all other contributions, of course. I'll repost a previous discussion on this topic - for your benefit: {=====================} So what is 3 million processors? 3,000,000/22,800,000 = 13%. In a 13 week quarter, this represents 1.7 weeks worth of production. With Intel's two major customers - Compaq and Dell - both using BTO (Build to Order) manufacturing techniques - and HP and IBM and Gateway quickly following, Intel needs to be able to ship large amounts of CPUs FROM STOCK on a moments notice. Does a 1.7 week's worth of inventory seem like a lot? Let's look at it from a financial standpoint. Intel's annual report, and Investor Relations personnel, have verified that Intel values Finished Goods Inventory according to the lower of either the cost to make the goods or the current market price of these goods. Assuming that Intel's costs are lower than the current selling price - let's assume a rather HIGH cost - $100 per unsold CPU. My own estimates are much less than this less but for now, let's use the $100/CPU cost of manufacturing. That 3,000,000 CPUs in inventory has a value of $300,000,000. According to Intel's Q397 earnings report, Intel had $401,000,000 in Finished Goods Inventory as of the end of September, 1997. Thus, the $300,000,000 inventory represented by the 3,000,000 CPUs in Finished Goods Inventory represents ONLY 75% of Intel's Finished Goods Inventory as of 3 months ago! Now for the moment, let's assume that ALL INTEL'S FGI INVENTORY is CPUs - that means that Intel's Inventory HAS BEEN REDUCED BY 25% in the past 3 months! Clearly, that is not a valid assumption. However, let us now assume that CPUs account for 75% of Intel's business. Would it not be valid to assume that 75% of their FGI is CPUs? And wouldn't the $300,000,000 CPU inventory in Finished Goods account for 75% of the previous quarter's $400,000,000 FGI total? I think 3,000,000 CPUs in FGI might be a reasonable number under these circumstances and interpretations. Paul