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

To: RDM who wrote (58672)	5/18/1999 4:17:00 PM
From: Tenchusatsu	Respond to of 1571405

Tom's Hardware guide reports a K7 system at E3 used as the demonstration platform for the upcoming Heavy Metal 3D game: www6.tomshardware.com The editor says this about the K7 system: The frame rates looked great given the complexity of the graphics. One of the Heavy Metal game level designers also showed how each of the objects in the game could have varying polygon counts depending on the performance of the system. Of course, the AMD-K7 system was able to handle the high polygon counts with no prob! Anyway, both Heavy Metal and the K7 system were the highlights for me at the show. Tenchusatsu P.S. - If you're interested in the game itself, be warned that its a game for mature audiences only, as it does feature some rather disturbing imagery.

To: RDM who wrote (58672)	5/18/1999 6:21:00 PM
From: A. A. LaFountain III	Read Replies (2) \| Respond to of 1571405

RDM: re Gross Margin estimates Sorry, but that's too easy! In 1998, Intel Architecture Business Group (IABG - MPUs and motherboards) were $21.545B of INTC's $26.273B in revenues and $9.077B of INTC's $8.379B in operating profits (there were modest profits in the Computing Enhancement Group and losses of $1.056B in All other). So the operating margin in IABG was 42% (9.077/21.545) and that figure includes R&D and SG&A. If we attribute 82% of R&D and SG&A to the segment (to match the revenue breakdown), then operating expenses were $4.5B and the segment gross margin was 63% ((9.077+4.5)/21.545). But that gross margin includes motherboards, which have a high purchased content. We can assume that without MBs, the gross margin for the segment (MPUs) was several points higher - say 65-67%. So you would need to adjust your 1Q99 model for both revenues (perhaps using 82% of the $5.9B reported to get the IABG segment and then backing out MBs) and gross margin on the resulting MPU revenues to derive MPU costs (or flip it around and estimate MPU costs to create an MPU gross margin of about 66%). The arithmetic is not particularly hard, but it's important to correctly identify as many of the variables as possible. The hard part is to come up with the constituent estimates so that the whole has some intellectual robustness. Good luck. - Tad LaFountain

To: RDM who wrote (58672)	5/18/1999 8:11:00 PM
From: Petz	Read Replies (1) \| Respond to of 1571405

RDM, your analysis showing gross margin (GM) on Celerons of 30% is a good start but that does not mean that the Celeron line is being sold above "cost" and is, therefore, legal. First, any Celeron being sold for less than (1-0.3)90 ($63.00) is obviously being sold below cost. Second, the definition of "cost" used to compute "cost of sales" and "gross margin" does NOT include marketing, general and administrative (MG&A for short) or R&D expenses. These two items in Q1 were 891M and 663M, respectively. Alloting 20% of these expenses to other businesses, leave 713M and 530M, respectively. We should apportion 41% of these costs to the Celeron (9.77M units out of 23.87 total units). That adds $509M to the costs of the Celeron, or $ 52.7 per Celeron.* Using a definition of cost which includes MG&A and R&D, clearly the Celeron is being sold below cost of $116. Perhaps Intel lawyers would try to apportion the MG&A and/or the R&D proportionate to the revenues realized from the 3 product lines rather than according to the number of units shipped, which is clearly illogical (how much advertising for Xeon have you seen?). Doing it that way adds $19 to the cost per Celeron, making total cost $82, perilously close to the assumed $90 ASP. Petz