A Review of the IDC numbers

I can see that someone has done a ‘Sharikou’ on Intel’s recent financial performance. A ‘Sharikou’ is an analysis method popularised by a similarly named blogger, where a desired result is only realised by varying the point of reference. Ignoring the usual method of 'like-for-like' or sequential comparisons, the blogger instructs his readers to compare Intel’s 2007 numbers with 2005 to get a “better understanding”. He doesn’t justify why his method gives a better understanding, but at least you can see that Intel’s revenue and margins are trending down – ‘Sharikou’ method successfully utilised.

IDC numbers (using only conventional methods of comparison) were released showing interesting trends. The total 2007 processor volume went up 12.5% while revenue only improved by 1.7%. IDC says that there was a degree of price erosion that occurred earlier in the year. True enough, but when someone suggests that Intel isn’t lean because it can’t reproduce the same margins as two years ago, I feel sorry for the poor analysis, and quite frankly, it isn’t surprising whenever the “Sharikou” is applied. In a duopoly where the market or revenue share is a zero sum equation (almost), comparing how much AMD and Intel performed using the same frame of reference, makes the most sense.

Intel and AMD did see an overall decrease in ASP mainly because of the larger presence of AMD in the notebook and server space (margins naturally decline as market share in a doupoly approaches 50%%). But it is interesting to see who was hit the hardest:
Global 2007
Volume increase: 12.5%
Revenue: $30.55B
Revenue increase: 1.7%

Intel 2007
Revenue (Digital Enterprise / Mobility CPUs): $25.89B
Revenue increase: 8.7%

AMD 2007
Revenue (Computing): $4.70B
Revenue increase: -12.4% (down from $5.64B)

It is quite evident that AMD has taken the brunt of the ASP erosion considering that market share only shifted by a couple of percentage points while both companies reported record volume shipped. In terms of laptop and server prices it is clear that the business environment has changed and the good news is both companies are taking steps to adapt. AMD has delayed Fab38 and for obvious reasons. At the moment they have the capacity to supply 80 million CPUs for the 70–75 million demand (2008) for AMD based systems. They now seemed to be content to play in the box they were forced to be in. Intel on the other hand plans to improve by divesting non-performing businesses, creating new high margin products and the usual, by outpacing the competition with better products using a better process.

It is premature and erroneous to dismiss the benefits of Intel’s 45m before the ramp is complete. Intel's guidance of flat margins throughout 2008 is likely due to their tendency to be on the cautious side and isn't sufficient to make quick assumptions on the company's cost structure or pricing strategy. Meanwhile AMD can only expect more difficulty as K8 gets even more outdated and K10 is ramped with very poor yields. In 2007 AMD managed to ship 400K QC units. It isn’t such a big number considering this is just 0.6% of their total volume. Barcelona or K10 is considered by many as a disaster in terms of performance. Financially, we have yet to witness how much damage it can do to AMD… assuming of course AMD ramps K10 on 65nm.