Thursday, June 08, 2006

Intel may suffer losses in the next seven quarters

Intel is cutting its own throat. It's confirmed that Intel will slash P4 and Core Duo prices by up to 61% on July 23, 2006. The stated aim is to gain back 3% market share. However, according to analyst report, Intel had already cut prices by up to 40% since April, however, that price cut failed to stimulate demand. On the contrary, Intel's volume in April dropped 21%.

In my opinion, INTEL made the drastic cuts because it's deperately short of cash, and it needs to convert its legacy inventory into cash real soon.

So far, AMD hasn't officially responded to Intel's cuts.

As I analysed here, Intel will see operating losses because of a price war. 3Q06 and 4Q06 will be very tough for Intel. After that, AMD will unleash its K8L super frag.

AMD is an all new beast. In the x86 space, who commands the high ground has the say on the market. AMD rules the high end server market and has 100% of the 64 dual core mobile market. It can easily deflate Intel's attack at the low end desktop. AMD 4x4 will command the desktop high end also. You don't have a full line of AMD products? Sorry, our Opterons and 4x4s are in short supply. Combined with the momentum of Torrenza, AMD is poised to unify the whole computing industry under one architecture - AMD64.

Intel's recent behaviour is a puzzling. It made everyone know AMD64 is better. Now it announces deep price cuts 45 days ahead, which poses a dilemma even for die hard Intel fanboys who wish to buy a Netbust today. Such early announcement might be an attempt to halt AMD. But, the world still needs PCes, and most people want to buy the best.

Honestly, I think Intel management has gone nuts. They were never bright, but what they are doing now is suicide. AMD has lower cost structure and near 60% gross margin, Intel's grosss margin is projected to be 49% for 2Q06. With fragile financials, Intel's long term viability is in serious question. I will not be surprised if Intel files Chapter 11 in two years.

It's time for AMD to make some aggressive moves.

40 Comments:

Anonymous Jeach! said...

Intel's recent behaviour is a puzzling.

I really don't understand this Intel move either?

Are they expecting to make up for the lost revenue by selling (the few available) Conroes at a premium?

But this will just halt Conroe sales altogether. This strategy is completely useless?

10:16 PM, June 08, 2006  
Blogger Mad Mod Mike said...

This will be very interesting to say the least for both AMD and Intel, to see how each fairs on price and performance.

10:28 PM, June 08, 2006  
Anonymous Anonymous said...

As predicted, Intel's BIG DUMP I SAY.. Look at the other side.. AMD is spending 2.5 billion on refitting new fab for 65nm.. Since no mass production of 65nm has yet to start and even though "talk" (paper launches) is cheap with no 65nms to show... investors are sure to throw their "weight" around (see how much AMD's share prices dropped today). And with price wars ahead, if AMD have to drop prices that would mean much less profit, also means loses as well at the end of the day. Both companies will suffer, but I foresee the worst is on AMD's front at the moment. Talks of mergers seems to be on the horizon.. citing Intel and AMD, but just rumors at the moment..

10:55 PM, June 08, 2006  
Anonymous Anonymous said...

Sorry this doesn't have anything to do with the current topic but wouldn't it be a good idea for AMD to ship an FX part at 3 or 3.2 GHz with a larger L2 cache or an L3 cache and make it compatible with 4X4?

12:36 AM, June 09, 2006  
Anonymous Anonymous said...

suits me fine I will buy AMD sell sell sel Intel..

12:37 AM, June 09, 2006  
Anonymous Anonymous said...

AMD is planning to slash prices!
http://www.theinquirer.net/?article=32
304
At these prices AMD can devour Intels market share!
But I have to wonder will they be making profits on these parts or will the have to make it up on their other parts? Also, what will the price cuts on the other parts will be like and what effects and to what extent will it affect both AMD and Intel?

12:43 AM, June 09, 2006  
Anonymous Anonymous said...

"AMD to ship an FX part at 3 or 3.2 GHz with a larger L2 cache or an L3 cache and make it".. Problem is AMD's silicon can't cut it past 3GHz on stock unlike Intel's (ever wondered why all of AMD's processors run below 3GHz? there's also the matter of AMD's "power efficient" campaign, pushing it to 3GHz+ would mean higher wattage for current 90nm process which is at the limit now). Larger L2 and L3 cache would mean die re-design and this would take time (to design, develop, test, debug, etc.). Also die shrink is needed to cram in those extra cache on the silicon real estate (reason for movin' to 65nm).

1:09 AM, June 09, 2006  
Anonymous Anonymous said...

Price war has just started. ;-)

http://www.theinquirer.net/?article=32304

3:33 AM, June 09, 2006  
Anonymous Anonymous said...

Operating losses? Intel still has 10B inthe bank. It still commands 55% margins..
What are you thinking?

8:14 AM, June 09, 2006  
Anonymous Anonymous said...

Intel distances itself from channel credit crisis

Intel, with the channel stuffing, has created some financial problems for its distributors and resellers. Looks like Intel's distributors are so desparate to try to move inventories, they are offering risky financing to their resellers.

"" The e-mail read: “It seems that you still do not give enough importance to the severe situation that Intel has created in the Middle East region. Another two of the major so called ‘system integrators’ are gone with new tens of million of dollars lost and with a fast crashing IT channel market, and a growing list of comapnies [sic] nearing bankruptcy. Intel is loosing [sic] face, image and credibility fast as all these are well known Intel CPU movers.” ""

8:52 AM, June 09, 2006  
Anonymous Anonymous said...

RE: but wouldn't it be a good idea for AMD to ship an FX part at 3 or 3.2 GHz with a larger L2 cache or an L3 cache and make it compatible with 4X4?

The modular approach of future AMD cpus will allow AMD to mix function blocks for cases like the 4x4 companion chips.

9:15 AM, June 09, 2006  
Blogger Sharikou, Ph. D said...

Read my examination of Intel's balance sheet. Basically, Intel has pretty much run out of cash. As for gross margin, read Intel's 1Q06 report, it's below 50%. Going forward it will be even lower.

9:17 AM, June 09, 2006  
Anonymous Anonymous said...

When I attended AMD technology day last Thursday, senior AMD managers poked fun at Intel's NetBurst architecture and the fact that Intel will be "going back to their previous generation architecture, and that would be an improvement". Most of the industry analysts in attendance began to laugh in the room and I couldn't quite figure out what's so funny and if they would still be laughing next month when Intel's Core2 architecture is released.

I asked some senior AMD managers what they were going to do It is beginning to look more and more certain that Intel's Core 2 architecture will "leap ahead"… when Intel releases their Core2 architecture next month and what they thought of the dire initial benchmarks posted at AnandTech and the response was "who set up the benchmarks" and more laughter ensued throughout the room. What everyone was laughing about was the fact that Intel had actually set up the test bed for those initial benchmarks, but what's forgotten is that AnandTech (responding to readers and critics) made Intel change certain aspects of Intel's test bed to address perceived inequities in the first set of tests. I say "perceived" inequities because in the end the changes didn't make a bit of difference and the results were just as bad for AMD's simulated FX-62 (without the faster socket and memory). Since these results were theoretical because the actual AM2 based FX-62 with faster memory access weren't being used and the test bed wasn't completely independent, we couldn't draw any decisive conclusions.

So last Friday when I saw the first set of independent benchmark results pitting a mid-end Intel E6600 "Conroe" 2.4 GHz CPU (due next month) against the just released flagship extreme edition AMD FX-62 CPU, I started wondering if AMD worst nightmare was coming true. Intel's ~$250 E6600 CPU annihilated AMD's ~$1000 Extreme Edition AM2 based FX-62! This effectively means that AMD's flagship desktop performance CPU will be obsolete by the end of next month when Intel released the CPUs codenamed Conroe. The 2.4 GHz Conroe E6600 CPU is a 65 watt part while Intel's Extreme Edition Conroe CPU will operate at 2.93 GHz and still be 40 watts lower than AMD's FX-62 which runs at 120 watt TDP. AMD's power advantage over Intel's current Pentium 4 NetBurst architecture just vanished in to thin air with the introduction of Intel's Core 2 architecture next month.

If that wasn't enough of a beating, Adrian Kingsley-Hughes who writes for our new "Hardware 2.0" blog linked to these phenomenal overclocking feats with the Conroe 2.4 and Conroe 2.6 GHz CPUs clocking to 4.0 GHz and 4.26 GHz respectively! I'm hearing that these kinds of numbers can be achieved with self-contained water coolers from multiple sources while the AMD FX-62 can barely get to 3.6 GHz with sub-zero temperatures. As Adrian pointed out, even AMD's "4x4" which is two dual core CPUs and two dual core GPUs is a stop gap measure that won't be practical since you can do just as well with a single mid-end Conroe 2.6 GHz CPU clocked to 4.26 GHz at 1/6th the price in CPU cost.

While I'm still eager to see more independent results that replicate these results, it is beginning to look more and more certain that Intel's Core 2 architecture will "leap ahead" as Intel's new slogan implies. AMD pointed out that they've been ahead of the game for 3 years (on most benchmarks and the results were always close) and it's inevitable for Intel to have a slight lead once in a while. The problem here is that this new Intel lead is not the usual leapfrogging where one competitor edges out the other, it's a massive lead across the board! AMD will be shifting to a 65 nm process by the end of the year and adding 128 bit floating point processors by the middle of next year though it's not certain if they can make a massive performance gain while making a massive reduction in power consumption.

Intel on the other hand told me that they won't be standing still and they don't ever intend to make the same mistake of allowing the NetBurst architecture to stay around for more than 4 years again. The Core 2 architecture will only be around for 2 more years until Intel shifts to something new. I asked Intel's representative if this is the kind of paranoia that would make Andy Grove proud and he laughed. The truth of the matter is that AMD is what's making Intel paranoid because they've taken a beating for the last 2 years at the hands of AMD. Who's going to win the processor wars doesn't matter because this is competition at its best and the consumer is the ultimate winner with better products at lower prices so let the wars begin!

9:21 AM, June 09, 2006  
Blogger Mad Mod Mike said...

Link - Taipei is even funnier when FS gets involved, haha.

9:32 AM, June 09, 2006  
Blogger DBA said...

mmm...

I recalled that AMD has 2.6 billion case or short-term investments.

http://www.eetimes.com/news/semi/showArticle.jhtml;jsessionid=XK4LSGEPOS2VQQSNDBCCKHSCJUMEKJVN?articleID=2912261

While Intel has around 1 Billion cash. Intel is not in a good position to fight in a price war for long. Particularly, the INTEL's burn rate is high (considering the head count in Intel).

Any way, Nash Equilibrium should be searched in 6-months time or one of them back off.

Time will tell.

9:40 AM, June 09, 2006  
Anonymous Anonymous said...

Hmmmmmmmmmm .... Sorry but lets suppose for a second that AMD chips are crap , slow and underperforming etc etc. ( to you all Intel fanboys).
OK and Mighty Intel is gonna crush the competition in the coming few months and so on . SO no more AMD.
Now consider this scenerio.
What will be all of getting then???? Hot and slow netbusrt P4"s??? I mean what will be the incentive for Intel to "leap ahead" ???
If there was no AND there would be no Conroe ,infact there might have not been P4"s at the first place and all of us would be running 486"s perhaps.
So thank AMD for driving the competition and innovation.

9:47 AM, June 09, 2006  
Anonymous Anonymous said...

"The Core 2 architecture will only be around for 2 more years until Intel shifts to something new."

Maybe conroe is so bad in multitasking so it is killed so quickly?

10:11 AM, June 09, 2006  
Anonymous Anonymous said...

In Europe the % in shops betwen intel and AMD is 70%/30%, what Intel is doing is moving all P4 it can.
Next they hype Conroe all they can before AMD can deliver next gereneration and the 4X4.
The ball is on AMD and its a matter of being able to produce the rigth amount of product at right price.
AMD must get the best revenue for the capacity level they have rigt now.
The good economic decisions and ernings above expectations is what 's going to win the war. They must have resources to build new factories and invest in new tech.

10:15 AM, June 09, 2006  
Anonymous Edward said...

If Intel's profit margin is/was over 50%, then theoretically they could cut prices over all products by 1/3 and still maintain a profit!

If they could gain market share because of this, then they coult probably cut prices even more (say up to 50%).

So it doesn't seem a problem if they cut 10% on the high-end and 60% on the low-end at this moment. I'm not an economist, though.

11:20 AM, June 09, 2006  
Blogger Sharikou, Ph. D said...

If Intel's profit margin is/was over 50%, then theoretically they could cut prices over all products by 1/3 and still maintain a profit!

50% was gross margin, after you deducted other costs, the profit margin was about 15%. Going forward, it will be even less.

11:30 AM, June 09, 2006  
Anonymous Anonymous said...

i believe your projection is a lot more pessmistic than reality.

NGMA will actually save intel from suffering losses. NGMA is a matured architecture, where it was already in mature phase back in August of 2005 (confirmed by two intel representatives from computex, separately)

intel may bring up another new architecture (not clovertown) about middle of next year or so, as they have 5 different teams working on 5 different architectures at the moment.

11:34 AM, June 09, 2006  
Blogger Mad Mod Mike said...

5 teams working on 5 architectures.....I'm not sure if that is ultra good or ultra sad.

Intel will just destroy themselves if the public knows that every 1 or 2 years a processor that is better will be coming out, so why buy what is out now? Osborne people, Osborne....

11:38 AM, June 09, 2006  
Anonymous Anonymous said...

"NGMA is a matured architecture"

You mean matured architecture changed every year ! what kind of mature architecture is it?

Maybe by Intel's standard :-)

11:49 AM, June 09, 2006  
Anonymous Anonymous said...

Intel will just destroy themselves if the public knows that every 1 or 2 years a processor that is better will be coming out, so why buy what is out now?

have you ever heard of moores law? that's the fact for 30 years... :D

12:14 PM, June 09, 2006  
Anonymous Anonymous said...

"Intel will just destroy themselves if the public knows that every 1 or 2 years a processor that is better will be coming out, so why buy what is out now?"

Do you buy video cards?

Dont you want the best performance?

Well they come out with new cards every year. I am not hearing anyone complain about this.

So why complain about Intel?

12:16 PM, June 09, 2006  
Anonymous Anonymous said...

"You mean matured architecture changed every year! what kind of mature architecture is it?"

Being mature doesn't mean you will stay same forever. Instead it means you have to grow and improve forever, just like a mature person. Intel didn't say it will give a fresh new marchitecture, but pull off major improvements every 2 years.

12:21 PM, June 09, 2006  
Blogger Mad Mod Mike said...

"Well they come out with new cards every year. I am not hearing anyone complain about this.

So why complain about Intel?" - People do the same thing with ATI and nVidia, except they don't announce products every 1 or 2 years, they just come out with them and announce maybe 1 product that is coming later the year.

Intel has roadmpas for the next 10 years and if they are releasing a new product every 1 or 2 years, it will stop businesses from buying systems and especially knowing enthusiasts. With the advent of SLI and CF, people will buy the best now and buy another one when the next best comes out, you can't do that with a processor. You spend alot of money now and alot later or you save now and spend alot later, most people can't do both.

12:39 PM, June 09, 2006  
Anonymous tomas said...

You don't have a full line of AMD products? Sorry, our Opterons and 4x4s are in short supply. Combined with the momentum of Torrenza, AMD is poised to unify the whole computing industry under one architecture - AMD64.

Sorry for the confusion, but what do you mean by "our"?

2:02 PM, June 09, 2006  
Anonymous Anonymous said...

"They must have resources to build new factories and invest in new tech. "

The do, it's called Fab30/36, Chartered, and plans have been announced for Fab38. R&D: They've collaborated with IBM for several years now.

"have you ever heard of moores law? that's the fact for 30 years... :D "

Yes, that was before the Industry hit a wall. You used to just scale everything! Gate Oxides on those Transistors are now 10A Angstrom! You're basically down to controlling a couple of atoms now!

Go to a tech conference... it's the topic every year. "When will CMOS scaling End", or "When will Moore's Law End".

Even the Intel guys that did the talk joke about the expected prediction that we'd be at 8GHz by now...

My $0.02: Intel is channel dumping, pumping Conroe to the point even Intel fanboys don't want P4. The either sell it at massive loss, or write it off...

Problem is they got 100k mouths to feed, many fab, many $$ losing businesses, etc.

They used to say, "Hey, we make all the money/margins on 100% x86 Servers... I don't care if every other business lose money as long as it hurts AMD, so they go away, and DIE."

The did this with their Flash business since it accounted for so little compared to AMD. (8% vs. 40%). So they dump flash prices to make AMD look bad...

Spansion's gone now (AMD/Fujitsu Flash), and GUESS WHAT...???

That principle doesn't work anymore... now they have a bunch of crap NO ONE wants.

For us, the consumers,... it's great either way!

3:43 PM, June 09, 2006  
Anonymous Anonymous said...

ok i'm a little lost here.. what exactly are we argueing about? which company is a better company, or which architecture is better than the other?

1. what i meant by matured architecture, i mean there is absolutely no bug, no BSOD, and the yield on NGMA is pretty high.

2. intel has vast resources it can invest into R&D. what i heard from intel representatives is that they are working on the next generation of microarchitecture, which is at least two generations ahead of k8. i know intel has a nasty habit of outdating its old technology at a fast speed. but if they're afford to it, and give publics better technology everytime, why not?

AMD really needs to wake up from their K8 success, and redevelop a whole new architecture. its not the number of cores that counts, but the architecture.

7:12 PM, June 09, 2006  
Anonymous Edward said...

Intel's strategy is pretty obvious: if you want low-end machines, buy one with p4; if you want middle-end ones (ie. enthusiast gaming machines), buy Core 2.

Core 2 will not compete with AMD on the true high-end servers, no matter how Intel pumps or fakes Woodcrest performance. However, 99% enthusiasts won't need 4p, and probably 9 out of 10 are happy with just a good 1p, where Core 2 seems going to have price/performance advantage.

From Intel's pricing we can see it virtually given up the high-end, high-margin market. But that may not be a bad strategy. It makes a lot of people happy... IBM, SGI, HP, all those RISC/Unix vendors if they're sick enough of x86-everywhere pressure and are yet reluctant to use Opterons. Intel might call truce with them on its next generation server chips, and focus to eliminate AMD on the middle-end enthusiast or 2p server market.

7:16 PM, June 09, 2006  
Blogger Mad Mod Mike said...

"Intel might call truce with them on its next generation server chips, and focus to eliminate AMD on the middle-end enthusiast or 2p server market." - We have yet to see the performance of Socket 1207 so we cannot count out the Opteron in 2P at all until we see 1207 or Rev. F/G for Opties.

7:55 PM, June 09, 2006  
Anonymous Anonymous said...

You forgot to mention AMD's current debt stands at about $1.35 billion.. (not accounting previous 1.5 billion debts in '01 and '03). See http://annualreport.amd.com/PDFs/AMD-2005ACO-Financials.pdf
This price war will definitely hurt AMD more than Intel. By reducing prices Intel has little to lose while AMD has more to lose (another 2.5 billion spending?). That's why AMD's price reductions (mostly on single cores) is not much.. as they still need to re-coup the dough..

9:03 PM, June 09, 2006  
Blogger Sharikou, Ph. D said...

You forgot to mention AMD's current debt stands at about $1.35 billion

The world is changing fast. In just 1 quarter, Intel's free cash flow went from $2 billion to 0.3 billion, AMD's free cash flow is 0.25 billion. AMD's debt is now $0.658 billion and Intel's debt is $2.26 billion. See
http://finance.yahoo.com/q/ks?s=intc
http://finance.yahoo.com/q/ks?s=AMD

9:36 PM, June 09, 2006  
Anonymous Anonymous said...

CorvetteKid: Sharikou, Anonymous' post @ 9:21 AM detailing his meetings with AMD mgmt. begs a response. Clearly, he's tied in and likes AMD stuff or he wouldn't have been granted such access.

However, if his guestimates are correct with Core2 and other super-clocked chips, Intel's product line is much much superior to what I have been reading (including here).

Your comments ???

10:21 PM, June 09, 2006  
Anonymous Edward said...

"CorvetteKid: Sharikou, Anonymous' post @ 9:21 AM detailing his meetings with AMD mgmt. begs a response."

That guy just copy and paste the whole article from some other webpage (I forgot which one). Much of the author's talking are nonsense, though I'm too lazy to dispell them one by one. Well, for example, the one he said to overclock a 2.6GHz Conroe to 4.26GHz... I'd say 1) probably less than 1% of Conroe can do that, 2) that thing won't be stable enough to burn encode one DVD.

How good is Conroe's yield? Just look at when Intel's going to release it and the availability. Conroe's pricing has zero usefulness if the chip is only available to OEMs - I believe Intel sell Conroe cheaply to OEMs in return that they will also buy lots of p4 craps. Intel is probably pricing Conroe based on its estimated yield in the end of 2006 - Intel has used similar tactics in its history - and if they can't achieve that yield by then, they'll be in very, very bad luck.

1:23 AM, June 10, 2006  
Blogger Sharikou, Ph. D said...

That guy just copy and paste the whole article from some other webpage (I forgot which one).

It was from George Ou's blog on ZDNet. Geroge Ou was praising the PD 805 overclocked to 4.1GHZ. He called PD 805 a "value SUV". As for CONROE, he was dancing on Hexus.net's result. He really has no clue whatsoever.

11:43 AM, June 10, 2006  
Anonymous Anonymous said...

"As for CONROE, he was dancing on Hexus.net's result. He really has no clue whatsoever."

humm... i thought Hexus's results are similar to Anand's results, which are similar to tomshardware's results, which are similar to............, and the list goes on

he didn't dance on Hexus's result, he danced on Conroe's results. he had a pretty good idea of what Conroe is capable of.

11:57 AM, June 10, 2006  
Blogger Mad Mod Mike said...

"humm... i thought Hexus's results are similar to Anand's results, which are similar to tomshardware's results, which are similar to............, and the list goes on"

20 people sit in a room. There is a computer in front of them. 1 person turns it on, and all 20 of them push the same button and record the results. The 20 people than publish the same results on their different websites.

I ask you, are all 20 credible? Is this not the same as if it were 1 big person? Please, do not be stupid in the future.

11:16 AM, June 11, 2006  
Anonymous Anonymous said...

"The world is changing fast. In just 1 quarter, Intel's free cash flow went from $2 billion to 0.3 billion, AMD's free cash flow is 0.25 billion. AMD's debt is now $0.658 billion and Intel's debt is $2.26 billion."

Actually you should be looking at debt/equity ratio not absolute debt. AMD=0.14, INT=0.066.

The other items you are ignoring:

1. Intel pays $2Bil/year to stockholders via dividends (AMD = 0), if Intel really needed cash they could reduce their dividend rate, or eliminate it all together. I guess the other option would be to liquidate fabs like you suggested in another blog, but I'm imagine dividends would go first?

2. I'm not sure how you are calculating free cash, but AMD had net borrowings of 0.21Bil in Q1, if this is included in the free cash calculation (not sure if it is or not), then your free cash #'s are artificial.

3. AMD will start depreciating Fab36 capital to the tune of ~280Mil in expenses/quarter going forward for the next 4 or 5 years. Combine this with the recent announced price cuts, AMD will have to gain significant market share to stay profitable this year.

11:32 AM, June 14, 2006  

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