so Jobs gets screwed by IBM over game consoles, thus Apple-Intel ?

[Yousuf Khan]

A fascinating article.

<quote>

Nor can AMD afford to make mistakes. Intel's PC chip unit turned in
gross margins above 49% in 2004, while AMD's gross margins for its PC
chips were just shy of 12% in the same period.

</quote>

You don't have to go any further to understand why big vendors are
reluctant to depend on AMD. A manufacturing gross margin of
_Twelve_percent_?

Little wonder that Intel isn't too flustered.

Actually, Forbes made a mistake there. Somebody in one of the investors
boards pointed out that the 12% figure is only AMD's operating margin,
not its gross margin. I don't remember what it's actual gross margin is.

Yousuf Khan

 

[Yousuf Khan]

Maybe you should show that to all the AMDtrolls who insist that AMD is a
much more worthy partner for Apple.

Forbes got it wrong, 12% is its operating margin.

Besides, you cannot know the world of x86 unless you know about what AMD
is doing.

Yousuf Khan

 

[Del Cecchi]

Actually, Forbes made a mistake there. Somebody in one of the investors
boards pointed out that the 12% figure is only AMD's operating margin,
not its gross margin. I don't remember what it's actual gross margin
is.

Yousuf Khan

If you have been following the Forbes articles about SCO and Linux and so
on, you would be somewhat more sceptical of what they write about
technology.

del

 

[Yousuf Khan]

If you have been following the Forbes articles about SCO and Linux and so
on, you would be somewhat more sceptical of what they write about
technology.

There's nothing I take at face value from anyone, including Forbes. I
only pointed that article out to demonstrate what I was talking about in
relation to AMD's APM technology and why it's different from many other
people's APM technologies. Forbes wasn't the first time I read about it,
I've been hearing about for a long time; Forbes just happened to be the
most recent I read about it and it's article was the most handy.

Then people took quotes from the same article about gross margins which
were unrelated to the original subject of the matter, the APM.

Yousuf Khan

 

[Yousuf Khan]

Intel has a whole bunch of fabs that are considered essentially
identical. They clone the process to start up the new fab. So allowing
each fab to wander off in whatever direction could be a bad idea.

How would you manage several fabs, all building the same products in the
same process? Please share your knowledge.

I'm not saying Intel has to follow AMD's model, I'm saying IBM probably
should. AMD's specialty is large scale manufacturing with a limited
number of fabs, while Intel's speciality is large scale manufacturing
with an abundance of fabs. AMD's model would probably fit IBM better.

Yousuf Khan

 

[Robert Myers]

Actually, Forbes made a mistake there. Somebody in one of the investors
boards pointed out that the 12% figure is only AMD's operating margin,
not its gross margin. I don't remember what it's actual gross margin is.

http://moneycentral.msn.com/investor/research/profile.asp?Symbol=AMD

gross margin = 63.7%

http://moneycentral.msn.com/investor/research/profile.asp?Symbol=intc

gross margin = 71%

But neither one of those numbers is a quote on the gross margin for
_PC_Chips_. Quoting an "operating margin" for a single product that
didn't correspond to a separate entity would be silly.

Del's urging toward skepticism duly noted, I'd be expecting a
retraction or some kind of explosion out of AMD for such a gross error.
I'll take Forbes over the comment from the investment boards. If it's
an error, it's a big one, and we shouldn't be looking to investor
boards for a correction.

RM

 

[Robert Myers]

Actually, Forbes made a mistake there. Somebody in one of the investors
boards pointed out that the 12% figure is only AMD's operating margin,
not its gross margin. I don't remember what it's actual gross margin is.

http://moneycentral.msn.com/investor/research/profile.asp?Symbol=AMD

gross margin = 63.7%

http://moneycentral.msn.com/investor/research/profile.asp?Symbol=intc

gross margin = 71%

But neither one of those numbers is a quote on the gross margin for
_PC_Chips_. Quoting an "operating margin" for a single product that
didn't correspond to a separate entity would be silly.

Del's urging toward skepticism duly noted, I'd be expecting a
retraction or some kind of explosion out of AMD for such a gross error.
I'll take Forbes over the comment from the investment boards. If it's
an error, it's a big one, and we shouldn't be looking to investor
boards for a correction.

RM

 

[Robert Myers]

If you have been following the Forbes articles about SCO and Linux and so
on, you would be somewhat more sceptical of what they write about
technology.

Does anyone in the financial press write about open source in an
impartial way?

I take it for granted they don't like and probably would say even
harsher things about it if IBM weren't a potential source of
advertising revenues.

SCO/Linux is a special case, of course. Anybody who doesn't want a
lecture about intellectual property goes to groklaw.

RM

 

[Yousuf Khan]

But neither one of those numbers is a quote on the gross margin for
_PC_Chips_. Quoting an "operating margin" for a single product that
didn't correspond to a separate entity would be silly.

Del's urging toward skepticism duly noted, I'd be expecting a
retraction or some kind of explosion out of AMD for such a gross error.
I'll take Forbes over the comment from the investment boards. If it's
an error, it's a big one, and we shouldn't be looking to investor
boards for a correction.

Hard to say what exactly they make on processors alone, because I don't
think either company breaks down their margins based on products. So
it's not clear how Forbes came up with the gross margin numbers for
processors alone. But as you yourself researched, the overall gross
margins for AMD & Intel are 64% vs. 71%, so it's not that far apart.

Yousuf Khan

 

[Del Cecchi]

I'm not saying Intel has to follow AMD's model, I'm saying IBM probably
should. AMD's specialty is large scale manufacturing with a limited
number of fabs, while Intel's speciality is large scale manufacturing
with an abundance of fabs. AMD's model would probably fit IBM better.

Yousuf Khan

And you know how IBM manages its fabs and does process development? Puts
you one up on me....

And don't forget that there may be a large number of different parts
being made in those fabs all at the same time...

del cecchi

 

[Del Cecchi]

Does anyone in the financial press write about open source in an
impartial way?

I take it for granted they don't like and probably would say even
harsher things about it if IBM weren't a potential source of
advertising revenues.

SCO/Linux is a special case, of course. Anybody who doesn't want a
lecture about intellectual property goes to groklaw.

RM

I'm not clear on the meaning of the last paragraph. And what I don't
understand is what possessed SCO to sue IBM? Did they think that somehow
IBM's IP lawyers had dropped the licensing ball for the past 10 years or
so? Did they think IBM would settle, and let them go after IBM's
customers? I really wish I knew the true story in this case. It can't
be what they said.

 

[Robert Myers]

I'm not clear on the meaning of the last paragraph.

I haven't read anything in the financial press that gives a picture of
the case anything like what you can find on http://www.groklaw.net.
The case is complicated, SCO has one of the best litigation attorney
money can buy, and they obviously aren't reluctant to sue people.

Given what I take to be the natural bias of the financial press against
open source, it isn't surprising that new stories about the case seem
to give the benefit of the doubt to SCO's doubtful claims, or at least
give them a pass, while highlighting the uncertainties and even the
unsavoriness of open source. Maybe just my sensitivities.

And what I don't
understand is what possessed SCO to sue IBM? Did they think that somehow
IBM's IP lawyers had dropped the licensing ball for the past 10 years or
so? Did they think IBM would settle, and let them go after IBM's
customers? I really wish I knew the true story in this case. It can't
be what they said.

At the risk of sounding like I want to play attorney, my bet is that
SCO thought if they could just get their discovery demands met, they'd
discover *something*, and I don't know if I'd be willing to bet that
they're wrong. With that many lines of code sloshing around, it's hard
to believe that no infringing code ever slipped into Linux.

As to how IBM is playing it, even if they agreed with what I just said,
they'd play it exactly the way they have: let SCO fight for discovery,
let them fight to find infringing code, and *then*, if there still *is*
an SCO, talk about settling. I can't imagine what else SCO would ever
have expected.

SCO's lawyer David Boies has contingent fee agreement (20% of *SCO*) if
he wins, just like an ambulance-chaser. If SCO weren't attacking open
source, what do you think the financial press would be saying about
*that*?

RM

 

[Robert Myers]

Hard to say what exactly they make on processors alone, because I don't
think either company breaks down their margins based on products. So
it's not clear how Forbes came up with the gross margin numbers for
processors alone. But as you yourself researched, the overall gross
margins for AMD & Intel are 64% vs. 71%, so it's not that far apart.

Manufacturers have a bogey cost for every product they make, or at
least they should. I wouldn't want to guess what Forbes used as a
source for those numbers. If the gross margin numbers reported by
Forbes are correct, then the PC chips business is a marginal enterprise
for AMD--probably even a losing proposition in the operating profit
sense. That's not the solidest proposition to be counting on if you're
thinking of AMD as a long term supplier of PC chips. What happens when
Wall Street puts pressure on the company to improve profitability?

RM

 

[Robert Redelmeier]

I'm not clear on the meaning of the last paragraph.

Mainstream media is a strong advocate for IP extention
(software patents, etc) because thier advertisers business
models lie in that direction.

And what I don't understand is what possessed SCO to sue IBM?

Because they could [had standing] with AIX. They didn't
have an other viable business model, so took the crapshoot.
It was a low win probability, but very high payoff.

Did they think that somehow IBM's IP lawyers had dropped the
licensing ball for the past 10 years or so? Did they think
IBM would settle, and let them go after IBM's customers?

No. Had they won, they'd have gone after Linux. Remember
Microsoft did give SCO large infusions of cash.

I really wish I knew the true story in this case.
It can't be what they said.

This one is actually fairly transparent.

-- Robert

 

[George Macdonald]

Manufacturers have a bogey cost for every product they make, or at
least they should. I wouldn't want to guess what Forbes used as a
source for those numbers. If the gross margin numbers reported by
Forbes are correct, then the PC chips business is a marginal enterprise
for AMD--probably even a losing proposition in the operating profit
sense.

It's kinda simple you know Robert and you've certainly demonstrated on many
occasions that you are not stupid enough to believe this Forbes number
so... WHY are you insisting on pretending? Uhh, there can be only one
reason! "Innocuous"??<guffaw>

 

[Robert Myers]

It's kinda simple you know Robert and you've certainly demonstrated on many
occasions that you are not stupid enough to believe this Forbes number
so... WHY are you insisting on pretending? Uhh, there can be only one
reason! "Innocuous"??<guffaw>

I wish somebody would explain it to me. Where did that number come
from and what does it mean? Even inside a mnufacturer, manufacturing
cost can be pretty arbitrary. Did Forbes manipulate the number?
What's the motive?

If nothing else, George, if Forbes can put that number out there and
expect not to get blown out of the water, it explains a great deal
about AMD's credibility problems. Don't blame it on me. I don't
publish any widely-read financial publications.

RM

 

[Del Cecchi]

I wish somebody would explain it to me. Where did that number come
from and what does it mean? Even inside a mnufacturer, manufacturing
cost can be pretty arbitrary. Did Forbes manipulate the number?
What's the motive?

If nothing else, George, if Forbes can put that number out there and
expect not to get blown out of the water, it explains a great deal
about AMD's credibility problems. Don't blame it on me. I don't
publish any widely-read financial publications.

RM

So far as I know, AMD only makes two things. Microprocessor chips,
including peripherials, and flash memory. They average 68 percent gross
margin it said above. Which one do you think has bigger margins,
Processors or flash memory? Flash memory is sold for digital cameras,
portable mass storage, and music players.

As I said, sometimes I wonder about forbes and technology. They
certainly don't seem to be the magazine they were in Malcolm's day.

del cecchi

 

[Robert Redelmeier]

Manufacturers have a bogey cost for every product they
make, or at least they should.

What is a "bogey" cost? Bogus? There are many.

Cost accounting is a serious discipline, and determining a
valid cost of a manufactured good depends entirely on what
the number will be used for.

The biggest distinction is between marginal cost (the increase
in costs due to producing one more) versus "average" cost,
total costs divided by total number produced. Byproduct credits
(up/down binning) and IP use complicate an already difficult calc.

I wouldn't want to guess what Forbes used as a source for those numbers.

Some anal_yst. Guaranteed bogus.

-- Robert

 

[websnarf]

So far as I know, AMD only makes two things. Microprocessor chips,
including peripherials, and flash memory. They average 68 percent gross
margin it said above. Which one do you think has bigger margins,
Processors or flash memory? Flash memory is sold for digital cameras,
portable mass storage, and music players.

That's a good question actually; remembering that margin = profit/cost
and profit = revenue - cost. AMD doesn't pay for the fab twice, but
the value of the fab has clearly depreciated quite a bit by the time
its used for flash. So there is a question of how to assess the fab
cost. Presumably in the books they "sell it to themselves at a
depreciated cost", but they could practically make up any number (up to
the original cost of the fab) I would think.

Other than that, flash costs are much lower. They don't have on-going
design costs related to "cranking the frequency"; flash is a kind of
memory array, so via proper redundancy in the design, there is no
reason their yeilds couldn't be as high as they want; they don't have
to pay for a "compatibility lab" with anywhere near the complexity of
those for their x86 CPUs. They are not paying retail marketing costs,
etc.

But Flash is a strangely cyclical market. Or at least it was. In some
quarters when Palm Pilots didn't sell well, AMD wasn't able to sell
them flash. Flash is a kind of market where you make big volume
deals with fewer customers -- so you can be either on the gravy train
or shut out very easily. Perhaps with more digital camera, cellphone
and mp3 player manufacturers, this is less of a problem these days.
But who knows -- Intel plays in the market too, remember.

Of course AMD is able to play a lot of games with CPU prices via market
segmentation, but all this has to be counted against higher costs and
intense competitive pressure from Intel.

So which unit has actually higher *margins* is not clear to me. Flash
may be lower revenues and lower cost at the same time, versus CPUs
which have higher revenues and costs at the same time.

Either way, figuring out the "margins" of the CPUs seperated from the
flash seems like a silly kind of exercise, since AMD's goal clearly is
to maximize net profits, not individual margins. I.e., without other
factors, such as total product shipped for each unit, and full
disclosure of costs, and without knowing how AMD is "dividing up the
fab costs" (or other shared costs), some of which I am sure are
available from the SEC filings, its both hard to put "margins for each
product" into perspective or even know what they are.

A Forbes article obsessing over its estimations of such margins -- I
don't know if I would take that as anything particularly meaningful
even if it got its numbers correct. Personally, I think both markets
are dominated by short term uncertainties that make this kind of
attempt at detailed analysis kind of useless.

 

[Robert Myers]

What is a "bogey" cost? Bogus? There are many.

Cost accounting is a serious discipline, and determining a
valid cost of a manufactured good depends entirely on what
the number will be used for.

The biggest distinction is between marginal cost (the increase
in costs due to producing one more) versus "average" cost,
total costs divided by total number produced. Byproduct credits
(up/down binning) and IP use complicate an already difficult calc.

But so what? Manufacturers rely on cost of goods numbers because they
have to. So do analysts. Knowing how the number was made is at least
as important as the number, but so what? Unless you can get inside AMD
and examine the books, you, and I, and nearly everyone else, is going
to have to take what appears in the media.

RM