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

To: Kevin K. Spurway who wrote (58767)	5/19/1999 2:42:00 PM
From: Tenchusatsu	Read Replies (1) \| Respond to of 1572107

Kevin, re-read Tad's excellent post: Message 9583815 and then give it a rest. As Tad mentions, "R&D is expensed, so by the time a product is developed, its revenues are funding the development of the next generation." Tenchusatsu

To: Kevin K. Spurway who wrote (58767)	5/19/1999 2:46:00 PM
From: kash johal	Read Replies (2) \| Respond to of 1572107

Kevin, Re: "You're not including related sales and marketing and general and administrative costs in this number, are you (in other words, you're talking marginal cost)? I'd guess you're also not including the Celeron product line's share of the R&D burden as well. Not to mention all the depreciation expenses associated with fab ownership. It's possible that from a cash perspective Intel does just fine with the Celeron, but from an accounting perspective it loses money." I think we are finally getting somewhere!!! Yes, he is talking about the MARGINAL cost. If you are asking does the Celeron LOSE money from a P/L standpoint when it sells chips for sub $90 the answer is clearly YES. However, not to get SCUMBRIA too exited...it is perfectly LEGAL for intel to sell chips at a loss as long as they sell them above MARGINAL cost. The problem is even more complex: for example if Intel did not produce all the celerons and could sell no more PII/III's their overall costs would RISE as they would be underutilizing their fabs. So the management problem Intel has is to manage production to meet the market, maintain reasonable utilization, manage ASPS and MHZ bin splits to keep the competition bleeding red ink, and keep ASPs solid at around $220 and margins in 55-60% range to keep the stock price growing. And they have managed this incredible balancing act with lotsa help from its competition. Howvever if Intel falters or if AMD finally performs there could be huge pressure in its stock price as even a 5-10% drop in ASPs has devastating impact on the bottom line. Regards, Kash