INTEL wants a price war?
There are analyst reports saying that Intel is about to start a price war against AMD. If Intel does it, it will run into operating losses as soon as 2Q06, instead of the 3Q06 I previously projected.
Right now, Intel CPUs' average selling price (ASP) is $150, while AMD's ASP is around $100. Intel could sell their CPUs at a premium because of their brand. But things have changed, most people start to know that AMD commands a 20-40% performance advantage over Intel and AMD CPUs use about 70 watts less power. Therefore, Intel CPUs are a tough sell.
For Intel to effectively compete against AMD and stop market share loss, Intel needs to bring its ASP to about 15% below AMD, or $80. Even at an ASP of $80, AMD will still have some advantage when you consider electricity cost over the life of the CPU.
With an ASP of $80, Intel revenue will be at 80/150 = 53% of current levels. If I use the current revenue number of 8.7 to 9.1 billion, this means a quarterly revenue of $4.35 to $4.55 billion, or roughly $2.5 billion operating loss per quarter, or EPS of (-$0.40) .
Intel is basically in an inventory clearance mode for all its products.
AMD should not get involved in this price war, instead it should shift production to more high end server and performance chips.
posted by Sharikou, Ph. D. @ 3/13/2006 03:53:00 PM
9 Comments:
intel is shooting itself in the head by doing this. fence sitters who are thinking of buying a new machine have to choose between intel's cheap + outdated processor or pay say $50 more for one of amds most latest machines.
Intel also has enough cash to give away processors for a year just to punish AMD if they like and no lawsuit can stop it. Intel's marketing is a powerful machine and they have a very loyal customer following, who won't go to AMD. I personally use both vendors for our firm's systems but the point remains that Intel has spent over $46 Billion in the past few years on fabs and R&D while AMD hasn't had that much profit in the history of the company.
Don't underestimate what Intel can and cannot do. They hav already suffered losses in the stock price and have already told the analysts that they should not expect good news from intel this year, so why not kick AMD in the ass why they're at it. AMD's had great wins in retail where they have won on low price. For many customers, that is what it comes down to and that includes servers too. Conroe won't be as bad as is stated here and a dual core Dempsey as reported yesterday at $200 will be very compelling to many people because it will have the relative safety of being an Intel platform, not just a processor with Taiwan, inc to provide the infrastructure.
corvettekid: You forgot about the lawsuit. I don't think either stock is currently discounting a payment from Intel to AMD on the order of $5 - $15 billion.
I've seen stranger things happen. Punch up "Texaco vs. Penzoil" lol.
Even if INTEL give away its CPUs for free, AMD can still make profit by selling to enterprises. DELL is already selling P4D servers at $243, so why did Google go AMD, instead of buying those $243 Intel servers? Because it would spend more money to take care of the crap. DELL is selling Intel PCes for $200 in China now, but the sky is not fallin there either. Intel can give all of its CPUs away for one quarter, then it has to stop, because its small cash pile of $12 billion will be used up, and it has $2.8 billion of debt.
INTEL's R&D is quite useless. 100,000 idiots are no match to one genius. INTEL's FABs are quite junky, 12 FABs can't meet chipset demand. AMD has only one 200mm FAB, but it can capture 21.4% of the market.
Nobody wants those crap Intel chip now. Giving them away will destroy any reputation Intel has.
A pig with lipstick on is still a pig!
Don't forget that intel has other revenue. It isn't purely based on processors. For every processor they sell, they have chipsets that they make money on. And other product lines. So your estimate of dropping 8.7 to 4.5 seems a little aggressive. Not to mention they don't need to make products cheaper. They can compete on cores alone. Get our dual core slow useless processor for X or pay a huge premium for the dual core X2. While the knowledable will pay the premium understanding that it isn't a premium, it will make it easier on the sales reps to push Intel to the masses who are only starting to learn about AMD's advanced products.
The price war is going to hurt both Intel and AMD in the short run. What the question really is how much. The price war hurts most is in Desktop and laptop segments, but less in server segment. My impression is that AMD has 60% of revenue from server segment. My guess the impact to AMD should be around 20%. But for Intel, that would be fun for short term. I wonder Intel has its operating loss first time in the past x years. Having said that, does Intel has the other viable option once it starts talking about the future products ONLY?
Intel's other biz such as flash are money losers. The outcome of the price war is intel will be pushed into the value sector. Once people are used to buying $80 dual die intel cpus, they will be reluctant to buy anything more expensive.
dont intel/amd make about half their money in the server market? anywho if intel gave chips away companies would still buy amd servers. google just bought 10,000 amd servers. if they wanted to get intel servers they would have needed over 15000. add in the extra cost of tech support, space, cooling, and power compared to the amd servers and even free chips might not be worth it.
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