Path: utzoo!utgpu!news-server.csri.toronto.edu!mailrus!tut.cis.ohio-state.edu!ucsd!ames!amelia!wilbur.nas.nasa.gov!ciotti From: ciotti@wilbur.nas.nasa.gov (Robert B. Ciotti) Newsgroups: comp.sys.super Subject: Re: Supercomputer ROI Message-ID: <6029@amelia.nas.nasa.gov> Date: 8 May 90 18:38:07 GMT References: <201@csinc.UUCP> <253@garth.UUCP> Sender: news@amelia.nas.nasa.gov Reply-To: ciotti@orville.nas.nasa.gov (Robert B. Ciotti) Distribution: na Organization: NASA Ames Research Center, Moffett Field, CA Lines: 73 Hello There, The Ultimate Warrior writes: >The problem with your assumption is that there is *no way* to make a >ten year development cycle followed by a five year product life time >pay off. It is even difficult to make it break even. Get out your >favorite spreadsheet and do this simple problem: > >1) 10 years of 100m/year R&D expense with no revenue. >2) 10%/year line of credit loan financing. >3) 5 years of 100% sales >4) 100% gross markup on sales, so that net revenues are 50% of > sales. > >You will find that to break even, the company will spend 1 billion >dollars on R&D, and 1.2 billion dollars on loan interest over those first >ten years. And then it will have to do 10 billion dollars in gross >sales per year for five years. And this is of course very optimistic, >because it doesn't take taxes or capital depreciation into account, >let alone indirect cost of doing business. DON'T forget those golden parachutes (:^{) I don't get the same numbers, but thats probably because I'm using the wrong base :). My accounting is rough but here goes... using yearly interest compounding, 100m for 10 years @10% future value annuity at year 10 is 1.593 billion year 15 value at 2.566 billion the 5 year annuity required to generate a future value of 2.566 billion is 420 million/year so, 420 million in net revenue/year to break even for 5 years with cost at 50% of product asking, thats 841 million gross/year over five years. (a lot of pipers) considerably off of the 10 billion. And with the 50million/year that Rob Peglar claimed ETA was funded at, it works out to 420 million gross/year revenue for an ETAism (still a lot of pipers;) As noted, this leaves out a lot. If you look at the past few years at CDC, losses aren't important, but their magnitudes are, hell it took a billion dollar loss in the disk drive industry to convince them to get out of the low end drive business. I think CDC would have been happy to break even on ETAs first child, be it a bit retarded (I feel flames already), but the bankers were another story. The scuttle I heard was that if CDC did not show profit by 2nd quarter 89, the already wary bankers (CDC had technically defaulted on loans recently and it seemed to really upset those guys), would come in and make some hard decisions for CDC management if they did not do something aggressive to re-align cash flows. Aggressive they were, with a sharp sword, severed a limb that could probably have been saved (ever have a fear of being taken to the wrong hospital?) . Another bit of interesting scuttle, which is in my opinion is a serious tax law problem, was the reason that CDC scuttled ETA is that the tax write-off for loss was much more financially attractive than selling. So the closing and not selling of ETA was really just a financially based decision and not a vendetta. ETA was certainly a promising mini-super machine, showing respectable performance, but in the super market, it was not quite up to the competition. But, are we comparing apples to oranges when you look at price/performance... Bob ciotti@orville.nas.nasa.gov This post does not represent the position of Control Data Corporation, ETA Systems, NASA, the Federal Government, or necessarily fact.