Intel Corp (INTC)

[Windsock]

If we assume that a fab is depreciated over 3 years, and assume 7500 wafer starts per week, that comes out to over $1700 per wafer for depreciation alone. So $800 covers the cost of the raw wafer and labor as well?

You have the concept right although I don't have sufficient knowledge to say whether the actual numbers are correct. But as a first approximation they are good.

Is 3 years too short a time for depreciation?

I think that 3 years is the depeciation schedule for fab equipment. It used to be longer nut the Semic mfgs pushed for the 3 year period on the basis that fab equipment is obselete as a practical matter after 3 years.

The depreciation of equipment is not a cash issue as Andy Bryant pointed out in the Webcast. The money was spent when the fab was built. Bryant went on to say that in times of excess capacity depreciation costs will impact earnings but not cash. On the other hand the lack of capacity in a recovery costs a lot of cash so it is best to have some excess capacity in a downturn. Intel manages business to maximize cash and does a good job per Bryant.

Bryant's comments were in response to an analyst question dinging Intel about capitol spending that was too high. The thrust of Bryant's answer was that the length of the downturn could not have been forecast and the capacity will be available when the upturn occurs.