Going Corporate . . .

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The average person reading this (or any other computer hardware forum) tends to be very allergic to money talk. They don’t terribly want to hear it; they often don’t find it relevant to what they’re interested in.

The problem is all the real action for the next six months isn’t going to be technical, but financial. That’s going to have a big impact on us all, whether it’s eyes wide open or shut.

First, there’s this little price war going on. Both AMD and Intel have piled up big to huge inventories. AMD has an inventory amounting to two-and-a-half months’ production, which is almost twice what they had just a few quarters ago. Intel is in even worse shape.

Despite this, AMD seems intent to continue to increase production the next few quarters, while Intel doesn’t seem to be cutting back.

Will the current price cuts be sufficient to sell all this old and new production? Put a gun to my head and I would say “No,” but no one, including the heads of the companies, knows how far this game of chicken is going to go before one or more parties throttle back.

If demand doesn’t pick up a lot next quarter, a lot more more than the usual third quarter increase, things could get wild in the fall.

The AMD-ATI merger makes it a lot more likely Intel will do things that previously were inconceivable, simply because AMD is financially a lot more vulnerable. Even at best, Intel is going to have a terrible quarter next quarter.

With AMD emptying out the piggybank to buy ATI; Intel may end up saying “screw it,” write off the value of a lot of inventory, even take a financial loss for the quarter, then sell what they wrote off for prices AMD can’t afford to match with big losses of its own.

If nothing else, that would make it very difficult for AMD to finish up Fab 36 and convert Fab 30. Up to now, AMD had hoped to pay for this out of profits and cash flow, but if they’re losing money hand over fist the next few quarters, there will be no money to equip or revamp. Yes, they could borrow, but how much more will they be able to borrow?

Yes, there’s Chartered, but they can’t make everything, and Chartered won’t be making CPUs for love, either. Any Chartered CPUs will be significantly less profitable than any made in Dresden.

Yes, AMD can muddle through, but “muddling through” probably means slower fab deployment, which means falling even further behind Intel in process development. Yes, at some point, even Intel might have to slow down future fab development, which means you don’t get future chips as quickly.

All this will affect not only the price you pay for a CPU in 2006, but when, for how much, or even if you might get a new CPU line in 2007 and 2008 and . . . .

Some AMDers might point to some news stories indicating that Dell will soon be selling AMD systems across the board, but Dell hasn’t exactly been doing too well lately, either. For a company that told its Taiwanese suppliers, “Get ready” in February, they seem to be taking their sweet time about getting the product out the door. At best, they’ve missed the back-to-school sales period, and while plenty of people talk about sales, no one is mentioning sales volume.

Indeed, Dell orders of AMD systems are being described as “insignificant.”

Any significant shift by Dell away from Intel is going to have a lot of impact on any price war, but we don’t know if this is a mountain or a molehill.

The next six turbulent months are likely to have a lot of impact on what both companies do, or even can do, the next few years, which will impact what you’ll do not only the next few months, but next few years.

And running SuperPi a million times isn’t going to provide any answers to this question.

Ed


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