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Technology Stocks : Qualcomm Incorporated (QCOM) -- Ignore unavailable to you. Want to Upgrade?

To: bananawind who wrote (17739)	11/4/1998 2:24:00 PM
From: Dave	Read Replies (1) \| Respond to of 152472

Off Topic, Lower ASPs Jim: I felt that it was a good, if not great, analogy. Intel is a low cost producer of microprocessors, uPs. They can produce chips at a lower cost than any of their competition, AMD or Cyrix/NSM or Integrated Device Technology. After Intel came out with the Pentium MMx and Pentium Pro, AMD introduced what is called the K6 at speeds up to 233 MHz. With this introduction, AMD also came out with a plan that the K6 will sell for 25% less than a comparable Intel chip. Seeing the competition, Intel promptly reduced prices (i.e. lowered the ASPs) of the existing Pentium MMx and Pentium Pro. While doing this, Intel also came out with the Pentium II line of processors. However, Intel was lowering the prices of their chips faster and faster. Therefore, their ASPs were dropping fast. With the ASP dropping, Intel's Gross Margins dropped from 63-66% all the way to 49%. Currently they have recovered to around 53%. Intel next came up with Market Segementation Plan to help increase their margins. Lower ASPs are not always healthy for a company. This is a statement of the obvious, but if Qualcomm continues to reduce their ASPs, Qualcomm is going to have to cut both the fixed and incremental costs of manufacturing phones and infrastructure in order to maintain/increase Gross Margins, while manufacturing more phones/infrastructure to sell more at reduced prices. dave