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

To: BigFish who wrote (35114)	7/28/1998 12:10:00 AM
From: Petz	Respond to of 1584665

hi, Big Fish, re:IS THIS COMPANY WORTH INVESTING IN? Did Jerry sandbag last quarters numbers with all his losses so he can start showing a profit next quarter? Even though I'm optimistic on the 3rd quarter, I don't think sales and/or expenses were manipulated to move losses to the 2nd quarter. "Cost of Sales" was actually DOWN in a quarter when K6 production rose from 1.55 million to 2.67 million. The killer in the 2nd quarter was that up to half a million 200 and 233 MHz k6 chips were sold the last minute to some big buyers overseas for less than the cost of production, probably $40. Losses would have been less if they kept them in inventory, but then it would be a drain on future quarters. AMD has consistently stated that the "breakeven level" of sales is between $650M and $700M. Last quarter's sales were $527M and the loss was $106M. This indicates that the breakeven level in the 2nd quarter was about $527M + $106M, or $633M, slightly below AMD's numbers. A $670M number is probably a good "breakeven level" for the 3rd quarter because depreciation will be up slightly, marketing expense up slightly and each additional $100M in sales might cost $10M in materials and labor. To reach this breakeven level, K6 sales have to increase from $220M to $363M, an increase of 65%. Believe it or not, this is quite doable. Here's how. 1. Average selling price (ASP) - the fire sale of obsolete processors will not be repeated. The ASP in 2Q was $82.40. Only about 40% of the CPU's sold were at 266 MHz and above. ALL the 3rd quarter production will be at 266 and above, in fact, almost all of it at 300 MHz and above. The ASP will rise to at least $98. (IF you just forget about the "fire sale" processors, the ASP would have been $92, and half of those were still the slow CPU's sold earlier in the quarter. 2. AMD has promised production will rise to 3.2 to 3.7 M. Many of us on the AMD thread have heard reports of production above even 4M CPU's. Lets take the 3.7M number and see what we come up with: 3.7M cpu's times $98 = 363M sales. Voila! Breakeven. Is breakeven anything to get excited about? You bet, because everythin above 3.7M sales will be pure profit and speeds of 350 MHz, 400 MHz are coming soon. The equivalent Intel CPU's sell for over $500. Furthermore, breakeven is considerably better than the current consensus opinion so there will be an upside "surprise." A long answer to a short question, but, YES, AMD IS WORTH INVESTING IN. A reasonable price for a "recovering" stock is 1.5 times the sales per share ratio. AMD's now at about 1 x sales/share ratio. Petz