7.17.2007

Intel Beats Market with an AMD Stick

Directly from Intel:
SANTA CLARA, Calif., July 17, 2007 – Intel Corporation today announced second-quarter revenue of $8.7 billion, operating income of $1.35 billion, net income of $1.3 billion and earnings per share (EPS) of 22 cents.

Among the notables is the net profit increase of 44% from the pre-Core2 year ago results. While demand for the quarter was strong, pricing competition in the AMD segment, also known as "the low end", remains competitive. For this reason, along with the softer demand in the Flash business, Intel's margins were significantly below expectations at 46.9%.

The server business continues to be robust with doubling of unit shipment of Xeons, exceeded the milestone of 1 million Quad Core shipped resulting in double digit percentage increase in revenue for this segment alone. The market continues to shift to DP while Intel takes advantage completely unchallenged.

The channel was unusually healthy during the quarter with significant increase in volume shipments. While this positive news affects both companies, the substantial impact of the lower revenue and ASPs on Intel's margins doesn't bode very well for AMD. I'm beginning to second guess any upside on AMD's results this quarter as Intel painted a bleak picture of the low end segment where AMD currently is allowed to do business.

The outlook for the 2nd half looks even more promising for Intel. With the 45nm Capex hit behind them, margins are expected to go back up to the 50's. Caneland is expected to arrive next quarter which should disrupts AMD's remaining hold on decent margins. Expect Intel to shift all marketing focus in the coming months to its Centrino brand hopefully to limit AMD's assault on the mobile retail segment. As 45nm will start production in Q3 and shipment in Q4, Intel expects its advantage in cost and product performance to increase even further.

It appears as though Intel will launch Penryn with significant volume as it admitted to taking 1-2% margin points for unqualified parts in Q3. This is a large number for a pre-production inventory and only points to the confidence Intel has on its 45nm process. As soon as Intel gets factory certification on the pre-qual build sometime in Q4, we should see good availability on the parts. Intel is so certain about 45nm that it even leaked the prices earlier today.

26 comments:

Anonymous said...

I can't wait until Two Thousand and Eight

Nehalem is going to take the cake

SPARKS said...

Nice report, Doc, well done.

Sparks

Anonymous said...

The L5410.

2.33GHz.
50W.
12MB.
$320.

©¿©

Anonymous said...

"Intel's margins were significantly below expectations at 46.9%."

It's amazing - once one source starts publishing this comment, it just becomes accepted fact (not just you but all of the news sources).

Consensus margin estimate (or at least Intel's forecast?) was 48%, while a 1% miss is real, I can't believe how many sources are calling this to be "significantly below" expectations...

Unless the news outlets are confusing the yearly estimate for GPM with the Q2 expectation?

All-in-all a solid quarter, though AMD's result should be more significant in establishing where things are at. Given the Q1 results, AMD should be exceeding, but I think they will do well to meet estimates (which would be a bit of a disappointment as expectations were fairly low to begin with)

Anonymous said...

2Q 08 just can't come quick enough!!!

Boy am I looking forward to Intel's pre bankrupt yard sale of 3GHz+ Penryns for $100!

LOL

Anonymous said...

Why doesn't Scientia get it? Intel doesn't have 3.2GHz Core released, therefore it can't? Time to take off the green glasses!

Kanter is smart.

From a business perspective, the key goal is to have enough performance so that you set the pricing range for the high-end parts (which in turn dictates how the mid-range and low-end can be priced). From that perspective, if you are 20% ahead or 30% ahead, it doesn't make a huge difference. For marketing/pricing reasons though, it is advantageous to continuously increase the frequency of your products and adjust price accordingly. Think about it this way:

If Intel comes out at frequency bin F, they sell some parts at the high price. Then they introduce F+1 and now F parts sell at the medium price.

Alternatively, you introduce F and F+1 simultaneously. Then you just get the high price for F+1, and the medium price for F. However, you leave some money on the table that you could have otherwise gotten (the folks who would have bought F bin parts at the high price).

Anonymous said...

Paul Otellini

Well, ours has certainly been cleaned up and is in very good shape as we talked about. I think there remains to be seen what others will say. The rumor out there is that the inventory in other parts of the channel is a bit long right now.

SPARKS said...

If I am not mistaken, AMD said it would never sell ANY of it fabs for cash, right? Well, they've got one in Dresden, Germany, (which we all know), the German government just coughed up well over a quarter billon EUROS. They are calling it a grant.

http://www.edn.com/index.asp?layout=article&articleid=CA6461260

Hmmn, German land, German workers, German financed. Sounds like a nice stake in a state of the art fab on the cheap! I'd love to see the TERMS of this so called 'GRANT'. Looks like the Germans are in the chip business, after all, no mater what the future may bring.

Oh yeah, AMD is not selling anything. Try to remember that.

SPARKS

Anonymous said...

"Hmmn, German land, German workers, German financed. Sounds like a nice stake in a state of the art fab on the cheap!"

Huh? This is a grant from the German government, it does not give them any portion of the fab. This is pretty commonplace in many fabs where the local/national government provides grants/subsidies to incentive a company to build or stay in their area.

This is not to say that AMD won't sell part or all of a fab in the future but the recent German grant is not what you are thinking it is.

sparks said...

Agreed; however, the key words I used were:

Stake
Terms
Business

The words I think you omitted were:

Solvent (after ‘stay’)
Terms (unless you know something you would like to share)

May I add:
Respectfully SPARKS

Anonymous said...

http://www.arnnet.com.au/index.php/id;2085170421;fp;4;fpid;399285820
See what happens when you switch to AMD? Poor Dell. Recently Gateway and eMachines have dumped AMD with resounding success.

Anonymous said...

"Sounds like a nice stake in a state of the art fab on the cheap! I'd love to see the TERMS of this so called 'GRANT'."

There are some articles online about this (details are a bit sketchy though) - check out eetimes. Germany is not taking a stake in AMD , it is purely a grant for AMD's fab expansion and conversion of F30. There were other criteria like they couldn't be more than 25% of the market or something like that for the grant to be valid.

This is not much different than the grant AMD would get from NY state if they build there or many of the grants that Intel gets with some of their new fab builds (Ireland, Israel, etc...)

Not trying to nitpick but you made it sound like Germany was actually getting a stake in the fab (or in AMD). Germany gets nothing out of this other than keeping AMD there (which means employing folks, more taxes, etc)

Anonymous said...

http://www.fudzilla.com/index.php?option=com_content&task=view&id=2026&Itemid=1

Could this possibly have been true? Yes it is Fudzilla...so take with the approproate grain of salt.

In any event the sale of fabs in Dresden, even if good in the short run would have likely put AMD at a serious strategic disadvantage. (Extra costs to pay foundries for producing chips would have put AMD at further price pressure, being at the whim of the foundries process development schedules, etc)

Again it is Fudzilla, but it does coincide with the special shareholder meeting which happened right before earnings. My best guess is cash on hand is going to look bad and AMD wanted to have at least some semblance of a plan and understand what they could and couldnot get away with before they get hammered by analysts during the earnings conference call.

If true (again I've only seen this on FUDZILLA), this is a pretty scary scenario for AMD... though there also was a seprate source which was quoted as saying AMD is investigating outsourcing some 45nm chip production to TSMC (forget the source).

All of these things may be difficult to believe when looked at in isolation, but if you attempt
to connect some of these...AMD looking at 45nm TSMC outsourcing --> special shareholder meeting just prior to earnings --> Fudzilla report on AMD looking into selling Drseden....

Anonymous said...

The special shareholder meeting was only to vote for a expansion on worker hold common stock , nothing to fancy .

Even so i really like how double faced and hypocrit the EU really is . Sue one for monopoly and "injust practices" , GIVE away money to the other ...

Really loved how when intel opened the Ireland FAB they didnt get a euro cent out of it ( unless you count the mandatory tax relief for 4 years )

Anonymous said...



My mentor at work has a friend on the inside at ATI (we do graphics and visualization work), and AMD's been laying off both their own and ATI's people at a rapid place. After that started happening, the talented software and hardware engineers didn't see too much of a point in staying and just booked it. They left for greener pastures (not an nVidia pun).

Right now, I'm of the mindset that even if Barcelona kicks the proverbial crap out of Penryn, I won't buy AMD because I don't want to support a company that pulls this kind of crap.

Roborat, Ph. D. said...

job creation usually is the key requirement for government grants. East Germany is desperate for job creation schemes and this easily qualifies for incentives as far as the EU is concerned.

Intel on the other hand was denied a certain amount when it wanted to expand one of its Fabs in Ireland because the plan didn't include hiring a significant number of people. Plus the fact that Ireland is the second richest nation per person in Europe the decision wasn't unexpected.

Typically, the grant requires job creation for a certain number of years. How secure those jobs are while AMD is struggling to turn a profit is another matter which I hope the EU is aware of.

Anonymous said...

$600M gone. How much of that $2B or how much ever they got lent is left?

Anonymous said...

http://biz.yahoo.com/bw/070719/20070719005974.html?.v=1

AMD #'s are out... 457Mil operating loss, 600Mil overall net loss. Margins did look a bit better though.

Cash on hand 1.6Bil? Does this include all of the proceeds from the 2.2Bil convertibles? It is only 0.5Bil greater than cash equivalents in Q1....

AMD now at 100Mil interest expense per quarter... ~8% of their revenue is going to paying just INTEREST on debt.

Cash flow looks to be a problem unless net income turns around QUICKLY...does look like the price war (at least on AMD side) is indeed over.

Look forward to your excellent analysis on the #'s.

Axel said...

Revenue was up sequentially, but I suspect this is largely because Q1 07 revenue was artificially down. As I recall, AMD flooded the OEM market with chips in Q4 06 and booked a lot of revenue. Then they had to cut back on shipments in Q1 07 in order to reduce customer inventory. Hence the dramatically reduced revenue in Q1 07.

My take: AMD's $611 MM loss in Q1 07 was artifically high due to artifically low revenue. Their $600 MM loss in Q2 is the real McCoy. Translation: AMD actually performed worse sequentially and are spinning the results a bit. Hopefully the CC will clarify things.

I bet their inventory figures are looking pretty grim now as a result...

Anonymous said...

Damn AMiDiots! Stock is up?????

Anonymous said...

Henri: Performance per watt matters.

Henri is going to shit bricks when Intel releases Harpertown and Cranberry Lake ©¿©

SPARKS said...

"Damn AMiDiots! Stock is up?????"

Do ya see what I have been saying? It's as if they can do no wrong! 2 consecutive HALF BILLION dollar losses, NO NEW PRODUCT, delays, outsourcing, BILLIONS IN DEBT, and this looks good???

At the risk of being redundant, the institutions who own 65% of AMD are looking at SOMETHING! IT CAN'T BE SPIN!

There IS more here than meets the eye.

SPARKS

Anonymous said...

It's actually 3 consecutive ~$500m losses.

Anonymous said...

"At the risk of being redundant, the institutions who own 65% of AMD are looking at SOMETHING! IT CAN'T BE SPIN!"

It about sucking less badly than expected...stock price is as much about trends and performance vs expectation as it is about raw performance and profitability. The scary thing though is profitability is often discounted (from stock price perspective) for new companies or companies that are on a high growth projection. AMD, I don't think fits either so I too am surprised how little value people are putting into profitability and cash flow trends (and/or overestimating how much K10 will lead to in growth).

The market is not always rationale... just look at the Krispy Kreme chart (KKD) - it took a while for folks to realize that a store that sells donuts may not continue to grow at the pace of high tech companies... CROX will eventually fall into the same category unless they branch out into new areas...

SPARKS said...

Well, This takes the expression, "Look at the donut, not the hole" to an entirely new 'Dementia'.

"It's actually 3 consecutive ~$500m losses."

Sorry, I stand corrected. Oy, the misery!

SPARKS

luvs otellini said...

I would love to be beaten by Paul's stick. But robo, pointer, and giant are also pretty good. Bring the vaseline boys!