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Wow, that was amazing. How the hell do you figure 3800+ is still turning a profit at 16% of its original price? You must be an Intel employee.

Well, in all fairness, I have spent thousands at Newegg and have never posted a review. Maybe the buyers saw what happened on the comments for 9500. It was a bytch fest by the Brood.

Only an AMD accountant could provide an exact value/percentage... But the normal pattern in manufacturing is to amortize the fixed (tooling and equipment) costs over some time period and build that into the cost of the product. So if AMD accounted for that stuff over, say 3 years as an example, then the only costs left to pay for once that time period has passed are for salaries and raw materials. A good chunk of that is already accounted for otherwise. Not to mention that marketing for gear that old is essentially nonexistant. And all of the stuff the company makes rides on the same distribution channels... So yeah, it's not out of the realm of possibility that AMD could make a per-unit profit on something that old and cheap. No need to be an Intel employee, either!

Oh brother.

So, now your so called Brood can affect Newegg? Geez, the excuses never cease. Please, point out a review in the 9500 that doesn't try to show it in a positive light, and that was written by your so-called Brood members? What? You can't. Wow.

Maybe Newegg took off the 9600 reviews cause they knew it was all drivel, and there was no good to come from them. Just like the moron who wrote a review for the Barcelona CPU where he overclocked it to 4.5GHz on air.

I miss read the 16%. I removed my comments on it.

That's illogical. Why would AMD have ever charged $300 if they could make money selling them for $50. That's one helluva markup and would have had their margins even higher during that time. Why do you think they went into the red as soon as they dropped prices around 40%?

Cause they knew they could.

Intel's product lineup was no competition for AMD's products back then, hence the higher prices. That's why they dropped prices prior to Core 2's launch, so they can get a few more sales, before the new CPU from Intel was released. Hell, it happened to all of AMD's products across the board, not just the 3800+. The FX series went from hovering near $1k to $500 in about a month, month and a half.

They went into the red, cause they started a price war, but forgot one thing - Intel has the money to sustain a price war, they didn't. Add the recent ATI buyout, and they were in the wrong position to start the pricing wars.

AMD can make money at the $50 point now because they already covered their R&D costs for the product, when the chip was at $300+. They don't start shipping a chip at $50 and later raise it to $300 to cover R&D - that would be illogical and suicidal in the competitive tech world because you just don't sell many outdated CPUs for $300.

A chip costs millions to design but only a few dollars to produce. Additionally, a fab costs billions and can output a certain amount of die area per time. That's their manufacturing in a nutshell.

The reason they started posting losses is that their price cuts were unanticipated, while the amortization of design and factory capital costs continued as charted. The losses were based on standard accounting rules. They don't post a $2 billion loss when constructing a new factory and then consecutive $600 million profits in subsequent quarters from the products of that factory.

Firstly - In a capitalist society, you charge what the market will bear. If people will pay $300 for a $50 chip, you'd be an idiot not to charge $300.


Secondly, as my example indicated, margins are NOT fixed over the entire lifetime of a product. AMD has to pay for the equipment that makes the things, right??? The amortize that cost over X number of years - I used three in my example because chips have a relatively short lifespan. In english that means they "Loan" themselves the cost of the new equipment, and write that off against their earnings over time. So their costs during the period of time they are writing off the equipment are higher. Once that equipment has been paid off, they are no longer having to raise the cash to cover the amortization costs. Since they no longer have to cover that cost, they can make money on a VERY significantly smaller product cost.

I dont' see why that's hard to understand?? Or perhaps we all should continue to give money to the bank after the house is paid off...

Clearly, these things are going to Asia first. Just like the 65nm Brisbanes. Only explanation. <duck......>

as others have pointed out...

Back of the envelope calculations show 1 CPU costs in the neighborhood of ~$20-100 to make in raw materials and labor costs. Smaller chips w/ good yields (like brisbane) is at the lower end of that spectrum. So sure, $50 is probably pretty close to break even. Order of magnitude at least.

But if that's all you ever sell them for, then how do you pay for the R&D you used to make the bloody thing? German subsidies? What about paying for the next generation? Wave a magic wand?

It's not simple capitalistic greed that set the initial price @$300. It's necessity.

wow....while many of your other statements have already shown it, this one statement really summarizes your lack of understanding of the semiconductor industry (or any manufacturing industry for that matter). First consider the HUGE costs associated with starting up a new factory, or the MAJOR costs associated with a factory that is already in place but must be retooled to manufacture a new product. Stay with me now....how do those costs "hit the books"? They do not get evenly distributed over the life of the product. What does this mean? It means that over time it becomes less expensive to manufacture a given product due to asset depreciation and hopefully other manufacturing/efficiency improvements. Using your completely incorrect argument no manufacturer should ever need to, or would benefit from reducing their price over time. You are also not accounting for any economies of scale. In general, the more you manufacture of a given product the more you can distribute fixed costs...thus reducing the cost to manufacture each additional item. Ahhhhh....this brings us to Yields in the semiconductor industry....contrary to what you appear to believe, yields typically improve over time (hint...this means they are not fixed from day 1)...thus, and Baron...this is a good point for you to stop and have someone read this post to you again.....cost to manufacture...wait for it..........goes DOWN over time.......thus.........see where this is going.......a company can actually reduce their price and uh oh....here it comes....make the same....or god forbid...MORE Money from the exact same product even though they are now selling it for less! All I can say is wow.......AMD fans better pray you are never in a position to actually influence AMD as a company......then again...maybe you already are...which would certainly explain their current position.

Then again, I am starting to wonder if we have met before....just in case, for future reference, no I don't want to super size my meal and yes I would like a receipt.

Thanks,

hognose

As have been mentioned before...

When a manufacturing company invests capital (money) into R&D, equipment and infrastructure (build/plant) to develop and sell a product they amortize the their expenditures over the course of a few to several years depending on the type of the expense and it's expected lifespan.

For example, the cost of R&D can be amortized over the course of up to 10 years. The manufacturer can always decide to write-off expenses as they are incurred, but that could mean substantial losses initially.

The cost of manufacturing equipment could be amortized over the expected lifespan or up to 7 years (not exactly sure). AMD/Intel may decide for example that the equipment necessary to make CPUs only has a lifespan of 3 years so instead of taking huge expenses as the equipment is purchased, they spread it out over the years. They probably would not amortize the expense over 7 year because that would mean they would be carrying they would still be carrying over those expenses and then amortizing more expenses later when they need to buy equipment to produce even smaller die CPUs. It's a play on numbers basically, ask a bean counter.

The cost of building a new assembly plant could be amortized up to a span of 40 years, I think.

There's a few types of amortization schemes, but the two I'm aware of are "straight-line" and "accelerated". Straight-line amortization is very simple, take the cost divide that by the number of years then divide that by 12 to find out how much to write off every month up to the specified number of years. Accelerated amortization is a bit more complicated and you would probably need to consult an approved accounting amortization table.

In 2006 Intel spent $5.9 billion in R&D, AMD spent 1.2 billion in R&D (click here). Those numbers would be a bitter pill for investors to swallow if Intel/AMD were to expense it all in one year. That would also be a huge drain on capital, capital that they could use to pay employees for example. Thus to "normalize" their expenses they could amortize it over the course of 10 years using the straight-line method or $49.2 million and $10 million, respectively, per month. In reality, both companies probably amortize less than the 10 years allowed by the IRS and would use the accelerate method of amortization because the benefits of current R&D expense quickly diminishes since most CPU architectures only have a lifespan of about 3 years (just a guess). On top of that, everyone knows that hardware is more expensive to buy when initially released than 1 or 2 years later.

Thus, it is logical to think that Intel/AMD will make more money at the beginning of a products life cycle because of relatively large profit margins and volume sales. Over time the two companies will sell their products for less to "convert" those with "older" technology. Typically this would mean less revenue because of lower profit margins and the fact that most people who wanted to upgrade have already done so, or people are waiting for the next price cut to happen. In essence, this would mean that Intel/AMD will pay most of the expenses at the beginning ("accelerated" amortization) so that over the course of the next few years their reported net revenue (Total Revenue less Total Expenses Paid less Bonuses Paid, etc.) will be more or less stable. At least in theory and based on market conditions.

Kinda long winded, but depending on how expenses are amortized, it is possible for Intel/AMD to turn a profit on an aging CPU selling for $50, if they can sell enough of them.

Bingo!! We have a winner! Jaguar said it far more diplomatically than I and clearly understands the cost to manufacturer a product over time is typically not fixed, thus the sale price does not need to be either.

hognose