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

To: Time Traveler who wrote (31435)	4/8/1998 10:29:00 AM
From: Maxwell	Read Replies (3) \| Respond to of 1571714

Man I love this stock. Sold my July options for 100% profit. Establishing Jan. 99 options. This is a great time to get in Jan. options. The stock will rock-n-roll this summer. Maxwell

To: Time Traveler who wrote (31435)	4/8/1998 11:31:00 AM
From: Richard Tuck	Read Replies (2) \| Respond to of 1571714

John, <<How can you say 'no'? The example of Motorola producing and selling 0.5um+ microcontrollers at under $1 each gives a contrary answer.>> Motorola can sell 0.5um processors at less than $1 because the die size of a 68HC05 is very small even at that geometry. By the way, HC logic gates sell at under $0.10 and they are on 3.0um processes. Obviously, if the die size is very small, there are diminishing returns in shrinking the die further. In the case of AMD and Intel, AMD has to go to 0.25um in order to survive. As someone pointed out, the Fab 25 building should be as depreciated as any of Intel's 0.35um plants, so the steppers, etchers, and other equipment are the main extra depreciation cost. Until AMD ramps the 0.25um process up fully, this depreciation will be a considerable per piece cost (thus the $700 million break-even figure). Once AMD ramps up 0.25um later this year, this will be less of a factor. As for Intel continuing to compete with 0.35um products, which ones do you suggest? Would the Pentium/MMX yield well at 266 and 300 MHz? If so, then this might have been a smarter move in the near term, but I think Celeron was a better strategic move. Intel is more concerned with converting people to the Slot 1/Pentium II mindset at the moment than it is on squeezing out big profits on the low end. Intel realizes that AMD would eventually increase 0.25um yields and that AMD would have to be defeated in the marketplace rather than the fab. I don't know whether Celeron will be successful, but it will be priced low enough to keep AMD in the red for a while longer. If Celeron is successful (even if it costs Intel money), AMD will be forced to adopt Slot 1 (and endure Intel's lawsuit). Richard

To: Time Traveler who wrote (31435)	4/8/1998 1:56:00 PM
From: Katherine Derbyshire	Read Replies (1) \| Respond to of 1571714

>>is it [depreciation] important enough to outweigh the advantages of smaller feature sizes?" How can you say 'no'? The example of Motorola producing and selling 0.5um+ microcontrollers at under $1 each gives a contrary answer. Please explain if you still stand by your answer.<< Yes, I still stand by my answer. The reduction of cost per die with decreasing feature sizes is the fundamental engine of growth and technological change in the semiconductor industry. Let's ignore microprocessors for a moment and look at DRAMs, which are much easier to compare because the only real variable from one chip to the next is density. The computer I'm using now has 40MB of RAM, which cost about $5/MB. The 386 I bought 7 years ago had 16MB of RAM, which cost about $50/MB. Ignoring dumping charges against memory companies for the moment, the reason why memory costs so much less now than it did then is that the chips are cheaper to manufacture. Yet, the fabrication cost per wafer has, if anything, increased, as equipment costs have gone up, consumable costs have gone up, environmental compliance costs have gone up, and so on. Now, in most industries, that's the end of the story. Costs go up, so prices go up. It takes a certain amount of steel to make an engine block, so an engine gets more expensive if the price of steel goes up. Fully depreciated factories are less expensive than new ones, so you only build a factory if you have to increase capacity. The semiconductor industry doesn't work that way. In the semiconductor industry, fabrication costs are assessed per wafer, but recovered per chip. In the case of memory, costs are recovered per megabit of memory in the customer's hands. So, if you can squeeze more megabits into a single wafer, the cost of each one goes down. To squeeze more megabits into a wafer, you have three choices: (a) increase the size of the wafer, (b) decrease the space consumed by each megabit, or (c) increase the number of usable megabits per wafer. (a) is expensive because you have to completely retool your entire fab to handle bigger wafers. (c) is extremely difficult, because yields are already in the 80-90% range. So (b) is the only alternative. (b) is the alternative that the memory makers picked when they decided to switch from 16 MB DRAMs to 64 MB DRAMS after the 1996 DRAM price crash. Since the market was glutted, they couldn't make money on 16 MB chips, so they decided to switch to 64 MB chips, which would have a higher ASP at roughly equivalent manufacturing cost. Microcontrollers and microprocessors are more complicated, because it's hard to compare designs. But, holding the design constant, the same logic applies. A 0.25 micron process is cheaper, per chip than a 0.35 micron process. Motorola could probably sell those $1 microcontrollers for 50 cents if they used a 0.25 micron process, but they won't because there's no competitive advantage between a $1 microcontroller and a 50 cent one. There's a huge competitive advantage between a $200 chip and a $300 chip, so Motorola uses its 0.25 micron process for Power PCs and DSPs instead. Also complicating the equation for microprocessors is the performance issue. Smaller devices are faster, even if you do nothing else to the design. So, a 0.25 micron process makes more desirable chips, for less money. Again, yield is the wild card in all of this, as AMD discovered. If you can't get equivalent yield out of your 0.25 micron process, the economics of scale are lost. So yes, a 0.35 micron process might be more economical, but the big reason would be yield and process maturity, not depreciation of the fab. Katherine