Advanced Micro Devices Inc (AMD)

[HailMary]

You can agree or disagree with his analysis, but this doesn't conflict with his thesis, which is that *margins* will improve

As you pointed out in another post, the memory group margins are not as good as the computation group. I think it is about 30% for the memory group vs. 50% in the computation group (I used incremental earnings to get a ballpark figure here).

Here is a scenario that has flat combined revenue and increased margins for both groups, but also has flat combined profit due to shift of revenue share from computation group to memory group:

 
               Q104   Q204 
 CPU Revenue  $571M  $521M   down $50M 
 CPU Profit    $67M   $47M   down $20M using GM of %60 
 Mem Revenue  $628M  $678M   up $50M 
 Mem Profit    $14M   $34M   up $20M using GM of %40 
 Tot Revenue $1199M $1199M 
 Tot Profit    $81M   $81M 
  
 

Now you could argue that they are saying overall margin would be up, and not just the individual group margins. In that case, yes, flat revenue would lead to increased profits. To get overall margins to go up in a quarter when revenue share is shifting from CPU to memory would require a very large margin improvement in the memory group, which is maybe not out of the question given that memory pricing in improving and they have greatly reduced production costs.

Having said all that, I do believe they are sandbagging, but I don't think we'll see much more than $.15/share in Q2. I would love to be wrong and have it be $.25/share.