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Politics : Formerly About Advanced Micro Devices -- Ignore unavailable to you. Want to Upgrade?

To: Jefferson Prescott Dewhurst who wrote (28536)	2/20/1998 4:00:00 AM
From: Reginald Middleton	Read Replies (2) \| Respond to of 1572208

You are assuming that earnings relfelct actual value. Have you taken into consideration amortization when you calculate the book value of the assets? FAB's are usually heavily deprecieated and amortized. Have you compared the book value of the DEC FAB to its actual market value (the value that it was sold to INTC for)? YOu shopudl notice a considerable difference. IT is higly unlikely for assets to actually sell in the market for what the company's balance sheet carries it at. This is why assets should be adjusted to market value at best, and adkusted to economic book value at the very least. <That value would be equal to or greater than the replacement value.> This is an assumption and is not necessarily true. <Whenever any particular company is not generating current earnings or positive cash flow the valuation of that company gravitates toward the value of the assets.> It gravitates towards the market value of the assets and not the book value. For instance, if that fab were worth more money in the hands of INTC mgmt. (due to the probability of superior execution) than in the hands of AMD management, then the market would value the fab at differently given the two unique situations, although the BV would remaing the same. The FAB could actually be worth less than book value if the is 1.) no actual market for the fab (potential buyer), 2.) the Fab is being misutilized bo AMD mgmt., 3.) unforeseen, yet obvious liabilities such as stock options, APBO benefits, pending lawsuits, a plethora of off balance sheet liabilities, etc. can drag the value of the corp. down pass the BV stated in the annual statement. If you look throughout history, there are many companies that sold below book value. The only asset that stands firm in valuation is cash. If a company is selling below its actual cash on the books (less liabilites), then we have an obvious mispricing, but otherwise you may have to dig deeper to find the answer. <The risk increases as the company is valued at higher multiples of projected earnings which may or may not materialize.> You are inaccurately casting earnings multiples as a reliable way of valuing the company. It is not.