The Gravy Train Is Over

AMD obviously didn’t have a great quarter over the summer.

On the CPU side, they basically held their own by selling at bargain-basement prices. The ASP (average selling price) of an AMD CPU dropped from about $75 in 2Q to $60 in 3Q.

You can’t make money at $60 a processor at .18 micron.

There’s two more harrowing problems ahead for AMD, though.

Where The Buyers Won’t Be

Something that has puzzled me for a while are reports are various retailers doing very badly, which the gross computer sales showed nowhere near the level of decline.

I ran across this today. It’s a projection of world computer sales through 2005, which sheds quite a bit of light on the subject.

The area that’s really taken a tumble has been the home U.S. market. IDC expects a drop of 25% in U.S. home computer sales, and then another 18% drop in 2002. Mind you, these projections came before September 11.

And what has been traditionally one of AMD’s strengths? The home U.S. market.

Nor does IDC apparently think this is merely recession-induced. In the year 2005, they project U.S. sales of less than 80% of sales in 2000. While I wouldn’t take numbers projected that far out as written in stone or even clay, it’s probably safe to say the U.S. home market isn’t exactly going to be a sales hot spot for the next few years.

That’s not necessarily awful news for AMD; what it does mean is that they’ll have to sell even harder to home owners outside the U.S.. Wouldn’t hurt to do better in the U.S. commercial market, either.

Dresden and .13

People forget AMD’s Dresden plant isn’t quite finished yet.

Within a year, it should be capable at operating at 100% capacity. With the shift to .13 micron and a few other changes, AMD is going to have the capacity to put out 50-60 million CPUs from Dresden.

That’s about double, or thirty million more than they’re making now. Thirty million CPUs amounts to over 20% of current (and anytime soon) world demand.

AMD seems to have this notion that since .13 micron Thoroughbreds take up a lot less die space than PIVs, AMD can make (and sell) them for a lot less than Intel.

If they can sell enough of them, AMD might be able to make a little money at a $60 ASP with .13 micron technology.

However, this would also presume AMD grabbing a lot more additional market share from Intel than they’ve been able to so far. That should mean rock-bottom prices.

This could bring AMD up to Pepsi level against Intel’s Coke. It could also bankrupt them.

Either that, or AMD scales back on full Dresden deployment.

Or AMD finds somebody with deeper pockets and a yen (or won) to take a shot at Intel, or maybe a NT (dollar) to pick with them.

AMD is pretty cheap right now. It’s only valued at $3 billion. That’s chump change in the corporate world nowadays.

Here’s Something To Keep AMDroids Awake At Night

There is somebody very interested in the CPU field for whom a few billion dollars would be no big deal. Intel.

They just did buy Alpha from Compaq, you know.

If I were Intel, I’d be thinking about it right now. Three billion dollars would probably be less than what they’re losing in profits for a year due to AMD’s existence.

Of course, maybe the antitrust people in the U.S. and definitely those in the European Union would go stark raving mad over something like this, but I don’t think this is an eternal block.

Keep the pressure on AMD a few more quarters. Let AMD’s stock price drop more. By next summer, maybe its continued existence starts looking a little shaky.

Have some discreet talks with the antitrust government people then. Promise to keep Dresden open, that should keep the Europeans and especially the Germans happy. Maybe sell Via licenses to Athlon technology if you absolutely have to.

Intel might not even need to buy AMD. They might just do what Microsoft did with Apple. Make an investment at an opportune time, in return for . . . good behavior.

Even a failed takeover might yield big dividends. Certainly would shake AMD up quite a bit and cow them more than a bit.

The problem AMD has is that all that extra capacity would be very handy to have . . . in 2004. Unfortunately, it looks like they’ll have it in 2002, right in the teeth of a recession.

It’s hard to see how AMD on its own could sustain a price bloodbath which would make what we’ve seen so far look like a scratch.

Do I Know Something You Don’t

Absolutely not. Pure speculation on my part. I don’t own any stock in anybody (like I could really move stock prices). Probably will never happen.

But it sure would make sense for Santa Clara.

Email Ed

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