Financials For Hobbyists

“I don’t care about finances; I just want to buy stuff and overclock it!”

Is that pretty much your attitude when talk turns to finances?  Let’s see if we can’t convince you why you should be a little more interested in the subject. 

It is true that a hobbyist’s interest in hobbyist companies is rather different than a stockholder’s.  You don’t want to make money from the company, you want to give it to them and get good products from them that will make you happy while persuing your hobby.  So long as they do that, you couldn’t give a hoot about the stock price or the profit and loss statement.  

So a hobbyist’s interest in corporate finances is limited to those instances where a company’s (or companies’)
ability to deliver the goods you want gets affected (either positively or negatively).  So long as the company has or can get enough money to keep delivering the goods as they planned for now and for the foreseeable future, you don’t care about the exact details and indeed have no reason to care.     

Over the years, I’ve tried to keep to this principle when writing about corporate finances, and I think I’ve pretty much have been true to that.  Let me illustrate this with the usual suspects, Intel and AMD.

Over the years, I’ve spoken little in detail about Intel’s finances.  That is because Intel is normally a pretty profitable firm that has been able to finance its R&D and fab construction out of its profits.  It doesn’t need the financial markets to do that; they don’t need to issue new stock nor take out big loans.  How much Intel makes varies, as does its stock price, but normally, it has no effect on Intel’s R&D/fab construction plans.  The only time in the last few years this happy state of affairs was threatened was during the time just before C2Ds when Intel had a string of quite substandard quarters.  Had that lasted much longer, it would have begun affecting Intel’s spending plans, so it got and deserved some attention then.  Fortunately for Intel, C2D proved to be a success, and profits got back to normal.    

In contrast. over the years, I’ve spoken a lot, at some time almost incessantly, about AMD’s finances.  That is because AMD has normally been a not-profitable or unprofitable company that usually has not been able to finance its R&D and fab construction out of its profits.  It needs the financial markets to do that; it has issued new stock a number of time and has needed to take out some big loans.  AMD’s financial status is usually the most important factor in its R&D/fab construction plans and has had a big impact on the products it has been able to put out, and even if they would continue to be making products at all.  So we’ve talked about them a lot simply because their finances largely affect what you have been able to buy from them, and you can’t buy a product from someone who’s gone out of business.  Since AMD’s near-term future seems reasonably assured provided the UAE bailout goes through, the number of AMD financial articles will drop off a lot, and the few you’ll see will probably have to do with any problems that might emerge with the bailout.   

With that being said, how is the current fiscal crisis likely to affect these companies and others?

The first question you need to ask is to what degree a company needs the financial markets to do its business, either by raising capital through stock issues or getting loans.  If we look at Intel and AMD, the answer is “not much at all,” though for much different reasons.  Intel doesn’t need the money; AMD just got the money it needs.

The second question you need to ask is to what degree an economic slowdown/recession will affect the profits of a company.  Here, the answer isn’t so good for Intel and AMD, actually, it’s pretty bad, but it’s important to understand why a recession is worse for an Intel as opposed to a Dell.

Both Intel and AMD fab their own major products (Foundry Company may become effectively independent someday, but for now, it’s AMD under a different name).  Chip fabrication is a business that in accountingese would be called an extremely “high-fixed cost, low variable cost” business.  In English, that means “it costs very little to actually make a chip, but it costs a hell of a lot to make the place that makes the chip.”  You have to spend billions of dollars to build the fab plant with the latest technologies.  Then you have to spend lots more to incorporate the latest technologies and techniques and get them to actually work.  You have to do all this and spend all that money up front whether you make a half-billion or a half-million chips.  

What this means financially is that when sales drop by X, your profits drop by almost as much as X: 80% or even more, so a 5-10% drop in CPU sales means a much bigger percentage drop in profits for an Intel than a 5-10% drop in sales would be for a Dell.  You save the relatively small cost of actually making the chip, but most of the cost of a CPU is actually the cost of the fab and the R&D.  You can’t cut back on the money you’ve already spent. 

What you can do is cut back on the money you’re going to spend.  Usually, that doesn’t mean stopping projects, but stretching out the period of time in which you spend it.  Would Intel do something like that?  Maybe they already have by pushing back a few of the lesser-Nehalem projects.  Maybe more will come. 

With AMD, of course, the issue isn’t a lower level of profit, but having one at all.  It will be interesting to see if AMD will come out with high-K 45nm chips next year; they’ve said nothing about that for quite some time.  I suspect high-K will have to wait until 32nm. 

I’m surprised at myself at saying this, but the major player in computing I have the biggest doubts about going into a recession isn’t AMD, but nVidia.  Their video technology doesn’t look so hot compared to AMD, they have the defective GPU issue continuing to hang over their heads, and both Intel and AMD are trying pretty hard to get them out of the chipset business, too.  They don’t normally rely on the financial world for funding, but if these circumstances keep breaking against them, they might find themselves needing extra cash and not being able to get it.  I’m not talking about bankruptcy any time soon, but if revenues go down and warranty costs go up, it’s hard to see how they can’t cut back on R&D, which isn’t what you should be doing when you’re behind.  

So. you see, corporate finances affects this hobby, too, actually affects it more than most.  Cutting-edge technology requires cutting-edge money to finance it, billions of dollars, often, and when the money isn’t there, the edge gets dulled.   What happens in the financial world today can often decide what you can buy tomorrow. 


About Ed Stroligo 95 Articles
Ed Stroligo was one of the founders of in 1998. He wrote hundreds of editorials analyzing the tech industry and computer hardware. After 10+ years of contributing, Ed retired from writing in 2009.

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