Tuesday, October 17, 2006

INTEL inventory piling up

Intel released its results. Its inventory is piling up even after writing off $100 million of junk.

Originally,Wall Street expected revenue of $9 plus billion, Intel lowered it to $8.3 to $8.9, and made $8.7. Operating income fell 56%.

Revenue for server and desktop CPUs dropped from $4.9 billion of 3Q05 to $3.5 billion of 3Q06. Patty won't get a bonus. Mobile CPU dropped from $2.3 billion in 3Q05 to $2.2 billion in 3Q06. Total revenue dropped from $10 billion in 3Q05 to $8.7 in 3Q06.

It's clear that Conroe and Woodcrest can't save Intel. Intel had a whole quarter of Woodcrest sales, and 2 months of Conroe sales. Yet, their desktop+server CPU revenue dropped from $4.9 billion to $3.5 billion, flat from 2Q06. So, in the back to school season, Intel's desktop+server revenue didn't grow with market. This is clear proof that Conroe is a killer -- an Intel killer. On the other hand, Intel's mobile business, which is mostly old stuff, is only slightly down.

Another thing you learnt from Intel CC is that most of their stuff are still 90nm. They only shipped 40 million 65nm CPUs total.

Mysteriously, instead of booking losses of $1.6 billion for dumping businesses it bought at high prices, Intel booked $200 million gain and no reduction in goodwill.

Though Intel made a profit, $400 million was gains from selling investments. The fact its unit actually grew indicates that AMD is capacity contrained. Basically, Intel is only selling what AMD can't fill. We will see this once we have AMD's result and inventory levels out tomorrow.

I re-iterate my projection for Intel's 2Q08 BK.

AMD is expected to post 50% year/year revenue growth tommorrow.

60 Comments:

Anonymous Anonymous said...

Now that's a quote from the INTC conference call.

Analyst:
Are you worried about a price war?

INTC:
Leading edge stuff always sells out first. "Price wars always occur in the brown banana category."

Translation: We can clear out our inventory because the COGS is already booked- anything we get for it is pure profit compared to writing it off. And we view AMD to be brown bananas. Not a reassuring view if I'm AMD. It's going to get ugly, and the only one that is truly good for is consumers, who are going to see some sweet pricing.

3:11 PM, October 17, 2006  
Anonymous Anonymous said...

2005 is a mysterious good year for Intel: with old P4 products Intel
gained 13% revenue increase as
nobody expected.
http://www.prnewswire.co.uk/cgi/news/release?id=166488

3:23 PM, October 17, 2006  
Anonymous Anonymous said...

LOL how about the 1.4 billion profit they made in Q3? forgot tht littel detail?

also their inventory may have rissen but only 100 million. Nothing near your projection of Pentium 4 beeing worhtless. And as you can see they still make money from the desktop processors.

3:48 PM, October 17, 2006  
Anonymous Graham said...

Basically, Intel is only selling what AMD can't fill.

This is the funniest comment I've heard from Sharikou yet. I actually laughed out loud on this one. Think about the irony...

Sharikou's only skill seems to be making excuses for AMD's poor performance. Let's see what AMD's profit is when they announce earnings. I am sure more apologizing by Sharikou when AMD disappoints yet again. Q3 is going to go down in history as a BAD quarter for AMD. Their ASP will have fallen a lot and profits will dip significantly.

4:10 PM, October 17, 2006  
Anonymous Anonymous said...

Lookie here the Pretender has changed his tune INTEL BK is coming in 08 now. A few short quarters ago it was on track to happen in 07.

Lookie at the 100million write off and still made 1.4 Billion selling junk. Wow what junk, wasn't the pretender telling us INTEL was making 80% crap CPUs that nobody wanted and would need billion dollar write downs? Looks like they sold all them space heaters.

Look at the pretender try and turn the 2.3 vs 2.4 billion mobile as some huge drop. Doesn't the pretender know that Q3 is typically one of the softest quarter over quarter.

Imagine here is INTEL at its worst... losing Dell droping prices and having not fully converted to Core2 and yet they still made billions of dollars.

Lets see how AMD does tomorrow. I'lll wager they will at best make no more then a hundred million... as the price war crushes them.

4:24 PM, October 17, 2006  
Anonymous Anonymous said...

why would anyone trust your predictions? you claimed intel would lose money in Q3, but they turned a huge profit!

conclusion? you don't know what you're talking about!

4:24 PM, October 17, 2006  
Anonymous Anonymous said...

http://yahoo.reuters.com/news/articlehybrid.aspx?type=comktNews&storyID=urn:newsml:reuters.com:20061017:MTFH11325_2006-10-17_23-11-57_N17267146&pageNumber=1&imageid=&cap=&sz=13&WTModLoc=HybArt-C1-ArticlePage1

"Intel 3rd-qtr profit falls"

HAH

4:26 PM, October 17, 2006  
Blogger Sharikou, Ph. D said...

they turned a huge profit!



Dude, it had a profit drop if 35%. Intel's loss and BK is just a matter of time. Their situation is getting worse worse every day. The trend is irreversible. The only business that is not crashing like hell is their chipset and mobile biz.

4:29 PM, October 17, 2006  
Anonymous Edward said...

"anything we get for it is pure profit compared to writing it off."

Anything Intel gets from its 75% production is pure profit?

4:45 PM, October 17, 2006  
Anonymous Anonymous said...

I re-iterate my projection for Intel's 2Q08 BK.

In 2Q06, you predicted "BK" in 5-7 quarters. That equates to between 3Q07 and 1Q08. Reiterate? Me thinks you are slipping your schedule. Have the cojones to stick to your guns, man. Or admit you are wrong. I don't care- but don't be a revisionist. That's just weak.

5:00 PM, October 17, 2006  
Anonymous Anonymous said...

Anything Intel gets from its 75% production is pure profit?

No, but anything already existing in inventory from a previous accounting period and that could otherwise incur an inventory writedown charge is effectively free.

As to 75% of production being effectively worthless, I can't say that the referenced link in translated Chinese is necessarily a reliable source. I'd trust the Inquirer more that source...

5:02 PM, October 17, 2006  
Anonymous Anonymous said...

Phd math = pretender math..

When INTEL has a 35% drop but still makes 1.4 billion. Cuts capital expenditure as bulk of 65nm tool installs are in place.. cut 10.5K people and will drop another couple billion in cost structure while not impacting output. INTEL at its worst in the past 6 years.. and according to the Pretender math they are going BK..

What is the spin on AMD? Record MS quarter, record MS in high margin servers. And what will them make? A few hundred million. Taking on 2.5bilion debt, haven't even figured out how to build/pay for their 45nm factory.. made what 100 million and change.. but extrapolated they will gain 50% MS and make billions.

PhD is like his deductive skills.

It was like when you were little and you pretended and played in fantasy land.

Sharikou the Pretender is his name

5:18 PM, October 17, 2006  
Anonymous Anonymous said...

It droped 35% yes true but last year there was no price war and no cross over to a new product line with further price cuts.

Also last year was as far as i can see a record year for Intel and that can be at bit hard to match when the market is not growing at the samme rate in 2006

5:23 PM, October 17, 2006  
Anonymous Anonymous said...

AMD does not exactly have that big of a number to beat anyways;)

5:25 PM, October 17, 2006  
Anonymous Anonymous said...

sharikou, you claim "their situation is getting worse every day" and cite a 35% year over year drop in profits.

however, you clearly don't know anything. as you say... "have some logic":

Q2'06 intel report showed a YoY drop of -57% (Q205 vs Q206).
Q3'06 intel report showed a YoY drop of -35% (Q305 vs Q306).

Q2'06 intel report showed a QoQ drop of -35% (Q206 vs Q106).
Q3'06 intel report showed a QoQ
increase of +47% (Q306 vs Q206).

bottom line: intel's business improved in Q3. your predictions are based on nothing but wishful thinking.

I would still love to hear why you think they had a $1.3B profit, when you said they would suffer "massive operating losses".

5:35 PM, October 17, 2006  
Blogger Sharikou, Ph. D said...

Q3'06 intel report showed a YoY drop of -35% (Q305 vs Q306).


In 3Q05, Intel paid big money to settle a lawsuit, in 3Q06, Intel sold business and investments to book profit.

If you take into account of the above, the drop is much larger.

5:43 PM, October 17, 2006  
Anonymous Anonymous said...

EPS estimate
by: sharikou 03/17/06 06:59 pm
Msg: 810598 of 810654

1Q06: $0.09
2Q06: $0.02
3Q06: -$0.12
4Q06: -$0.45

5:53 PM, October 17, 2006  
Anonymous Anonymous said...

I project 3Q06 operating loss for INTEL
by: sharikou 03/09/06 05:48 pm
Msg: 805365 of 806174

now, you can plan your trading strategy based on that million dollar hint

5:54 PM, October 17, 2006  
Anonymous Anonymous said...

haha, you're stupid. check the numbers:

in Q306, intel incurred a $100M write off of inventory. (no inventory write off in Q305)

in Q306, intel earned $100M from sale of investments. (no investment extras in Q305)

in Q305, intel incurred a $140M write off due to a lawsuit settlement (no lawsuit negatives in Q305)

So, if you want to discount one-time charges (which it sounds like you do), the difference is 1.3B vs 2.14B, instead of 1.3B vs 2.0B

so the decrease was approx -39% instead of -35%. A differnce of 4% is "much larger"? the conclusion still holds: intel's business is improving and you are full of hot air.

6:05 PM, October 17, 2006  
Anonymous Anonymous said...

It should be obvious that Intel’s accounting department won’t be out done by the Marketing department. Accounting magic or simply good execution?

Kudos to Intel, unless AMD’s numbers show market share gains. Realistically Intel should have squashed AMD by now. If AMD gained a few points market share in Q3 then I would say “The little company that could” just ate Intel’s lunch.

6:19 PM, October 17, 2006  
Anonymous Anonymous said...

You guys take this guy too serious. He's just doing this for kicks or he is just an idiot. I'd say he does this for kicks since no one is stupid enough to believe half of the crap he writes in here. I actually like this guy since he does this sharikou character pretty well. Keep up the good work you crazy amd loving guy.

6:23 PM, October 17, 2006  
Anonymous Anonymous said...

Q2'08?!?!

Back in Q1'06 you were saying 5-7 quarters (which would mean Q2'07-Q4'07).


But then again you predicted OPERATING LOSSES in Q3'06 and there is neither GAAP nor operating losses.

You also neglected to mention that despite price cuts, net income was actually UP 47% from Q2'06...

Let's see...you also rounded $326Mil up to 400Mil for selling of investments... and also did not mention that net income also included some of the expenses from layoffs...

Oh and did Intel beat or miss consensus?

Nice objective analysis, as always

6:28 PM, October 17, 2006  
Anonymous Anonymous said...

What happened Pretender..

Pretender Math prediction
3Q06: -$0.12

Actual INTEL
3Q06: +27 cents

WOW is your understanding of benchmarks, Market Share, technology as good. Please share with us some more insightfuly predictions of the future.

I'm an eager investor and AMD fanboy awaiting your dribble.

LOL

6:29 PM, October 17, 2006  
Anonymous Anonymous said...

"Q3'06 intel report showed a YoY drop of -35% (Q305 vs Q306)."

From report you linked: "GAAP results for 2005 do not include the effects of share-based
compensation."

You're comparing a GAAP (2006) to non-GAAP (2005) which didn't include options/shares expense. You're smart eniugh to understand this right?

The 2005 net income would actually be lower if compared apples to apples to 2006 (and therefore show less of a YoY drop)....but you already knew this right?

You also neglect to mention the Q3'06 results include one time restructuring charges and the $100Mil inventory write off; which if excluded (like you suggest we should do for the one time positive #'s from bus units sales) would make the drop YoY actually less as well.

So are you finally willing to admit your Q3'06 prediction of MASSIVE OPERATING LOSSES is actually wrong or has Intel just paid off the world to hide their losses and show a profit....

6:42 PM, October 17, 2006  
Anonymous Anonymous said...

"Basically, Intel is only selling what AMD can't fill."

You claim AMD can supply 40% of the market right now (maybe it was 50%?). If Intel is only selling what AMD can't fill, this would mean AMD would have 40% MSS right now! Given Intel's unit sales have gone up in Q3 this is unlikely unless AMD's unit sales have ~doubled - I guess we'll see tomorrow.

It is comical watching you try to extricate yourself from the ridiculous web of predictions you have made over time!

6:51 PM, October 17, 2006  
Anonymous Anonymous said...

When Intel goes full force 45 nm in 2008 with Nehalem+IMC+CSI..AMD is doomed forever! Muhahaha!

6:52 PM, October 17, 2006  
Anonymous Anonymous said...

They're in the middle of a price war with AMD, what do you expect? That profits would be higher than ever? This is an excellent result considering the circumstances!

I can't wait to see what result the price war will have on AMD's financial results.

6:55 PM, October 17, 2006  
Blogger Sharikou, Ph. D said...

in Q306, intel incurred a $100M write off of inventory. (no inventory write off in Q305)


Dude, writing off $100 million inventory means nobody wants the crap. This is different from settling a lawsuit, which is one time thing. Expect from now on, Intel will write off more and more inventory.

7:18 PM, October 17, 2006  
Blogger Sharikou, Ph. D said...

You claim AMD can supply 40% of the market right now (maybe it was 50%?).

No, I said AMD can supply 40% exiting 2006. You should note that 50% of Intel's stuff are still 90nm. So far, they only shipped 40 million 65nm parts total (since 1Q06). However, once AMD is in 65nm mode, its switch will be very quick.

7:21 PM, October 17, 2006  
Anonymous Anonymous said...

Dude! Your predictions were dead wrong! Instead of admitting it, you are ignoring the questions!

Can you explain why you were so wrong about Q306?

7:54 PM, October 17, 2006  
Anonymous Anonymous said...

Expect from now on, Intel will write off more and more inventory.


Except that Andy Bryant flat out stated in the conference call that he did not expect to write off inventory in Q4. Think he is lying at a conference call? Think he is asking for handcuffs? Or you talking out your posterior?

8:06 PM, October 17, 2006  
Anonymous Anonymous said...

The reason Intel did not book the lost for unit sale is because the transaction is not completed yet.

NEW YORK, Oct 17 (Reuters) - Chip maker Marvell Technology Group Ltd. (MRVL.O: Quote, Profile, Research) said on Tuesday it intends to meet potential lenders in connection with the private acquisition financing for the purchase of Intel Corp's (INTC.O: Quote, Profile, Research) communications and application processor business.

Marvell said it signed an agreement on June 27 for Intel to sell its communications and application processor business to Marvell for $600 million plus the assumption by Marvell of certain liabilities.

9:10 PM, October 17, 2006  
Anonymous Anonymous said...

Some joker said "you guys take this guy too serious. He's just doing this for kicks or he is just an idiot. I'd say he does this for kicks since no one is stupid enough to believe half of the crap he writes in here"

He is this stupid.

I don't take him seriously as he is too stupid to take seriously. Its like being bothered by a lunatic.

9:26 PM, October 17, 2006  
Anonymous Anonymous said...

So Dr. Nostredamus, what is your prediction for Amd's Q3 results? I hope you do better with you darling chip company, which by the way you have a creepy love afair with, then you did with big bad Intel.

9:30 PM, October 17, 2006  
Blogger Sharikou, Ph. D said...

The reason Intel did not book the lost for unit sale is because the transaction is not completed yet.



What about the garage sale of Dialogic? I smell cooked books.

You also neglected to mention that despite price cuts, net income was actually UP 47% from Q2'06...

You should look at the CPU sales. Only mobile showed some small increase. Dekstop+server stayed flat. Where did the income come from? From selling investments.

9:59 PM, October 17, 2006  
Anonymous Anonymous said...

Firstly less of the name calling, if you do not enjoy visiting this blog then go somewhere else.

Well Intel beat expectations so it will be interesting to see what AMD can do tonight. Estimates are sales up to $1.3b and profilts of about $115-$120m

If Intel is doing better than expected does that mean AMD will do worse, or are both doing better?

Will be interesting to watch....

10:15 PM, October 17, 2006  
Anonymous Anonymous said...

"Another thing you learnt from Intel CC is that most of their stuff are still 90nm. They only shipped 40 million 65nm CPUs total."

Are you an idiot, crossover = more than 50% of the products are now 65nm. Out of curiosity what percentage of AMD's Q3 sales will be 65nm? How about Q4'06? Q1'07?

"Only" 40million 65nm CPU's - how many CPU's (of any type) has AMD shipped this entire year?

"Though Intel made a profit, $400 million was gains from selling investments."

They also took some one time charges too... why are you not counting the NET one time charges since you are looking at PROFIT (not revenue)?

Why are you not factoring in the stock expensing impact Q3'05 would have seen since Q3'06 results now reflect this? (Q3'05 would be another ~100mil net lower)

Your financial analysis is rather weak and supericial...

Also curious as to what your take is on the fact that after substantial price cuts Intel gross margins were not down from Q2'06?

10:51 PM, October 17, 2006  
Blogger Jeach! said...

Can you explain why you were so wrong about Q306?

1. Because Intel put one-time revenues from the sale of businesses.

2. Because they only wrote-off 1/3 of the 10K workers laid-off, when they should have booked the entire amount.

3. Because they 'think' they can get rid of $4 billion of (at-cost) inferior inventory. Right, and I can make $1 million now... but I'll wait later!

a) Every single day they keep a chip in inventory is one day closer to being obsolete technology!

b) Every day you keep a chip in inventory is costing them money! How much does it cost to store 50+ million chips?

c) A product has a life-cylcle... from money, converted to labour for product or service, converted to a sale, converted to credit and converted back to cash (a little more than what you started with). In Intel's case, when you burn that cash and can't convert it back to cash right away, you loose the interest on it. Not only that, but you lose value on that money due to inflation (~1.5 to 3% per year).

---

I'll make this prediction right now! I predict that AMD -- although they are suppose to be capacity deprived -- will have a small build-up in inventory tomorow (mostly low-end products). This is a strategy Ruiz has to protect itself against Intel's final assault on AMD. You fight fire with fire just like you battle a price war with a price war. If you don't have processors available to sell at low prices then your not in a war... and that can hurt you BIG TIME!

I say 'final assault' because Intel has nothing left after this! They will be out of breath if it doesn't work! The future will then be a true duopoly!!!!!!!!!!!

11:06 PM, October 17, 2006  
Blogger Sharikou, Ph. D said...

They also took some one time charges too...

The charge was for dumping products nobody wants and laying off useless people. Those are recurring charges, as Intel will continue to dump and layoff for the next few quarters.

11:08 PM, October 17, 2006  
Anonymous Anonymous said...

There is no mystery to the lack of the goodwill impairment in the numbers that Intel announced.....it was already accounted for in the past. There will not be a substantial writedown related to these sales this quarter or in the future.

$611M goodwill impairment charge taken in Q4 '03
$405M charge in Q4 '01
"Amortization and impairment of acquisition-related intangibles and costs" several hundred more $Mil over many quarters.

That is the $1.6B you keep referring to.....it is already on the books.

Any way you slice this up, Intel has put in a great quarter compared to expectations. Now we get to see if Intel ate AMD's lunch when AMD announces.

11:25 PM, October 17, 2006  
Anonymous Edward said...

"No, but anything already existing in inventory from a previous accounting period and that could otherwise incur an inventory writedown charge is effectively free."

Even if inventory level remains the same (or becomes slightly lower), it still doesn't mean Intel selling 75% of its production well. Core 2 Duo was not on sale in Q2, yet Intel had been building up Core 2 for inventory 2-3 months prior to prepare for its Q3 launch. IIRC 20% of Q2 inventories were Core 2.

Now, how much of the Q3 inventories are Core 2, and how much are Netburst? Intel wouldn't say. It even wouldn't give a specific inventory number after several questioners asking. But a fair guess is that Core 2 inventory was down and Netburst went up.

Unless Intel could show its inventory going down significantly, it is not selling its older processors (75% of its production) well at all.

11:26 PM, October 17, 2006  
Anonymous Anonymous said...

Yo Pretender,

You forgot to mention that Intel gained couple of percentage points market share.. Did that just skipped your mind??

11:27 PM, October 17, 2006  
Anonymous Anonymous said...

"The charge was for dumping products nobody wants and laying off useless people. Those are recurring charges, as Intel will continue to dump and layoff for the next few quarters."

Did these same charges occur in Q3'05? No.

So you say look at all this "extra" (non-CPU) revenue in Q3'06, yet ignore "extra" (non-CPU) expenses in Q3'06 - good analysis as always....

And if you look closely at the Q3 results you'll see both flash and "other" were more significantly down from Q3'05 (this accounted for an additional -86mil + -163mil in net income), but why let facts get in the way of a good story....

You should listen to your own advice ("You should look at the CPU sales.") you're mixing and matching CPU revenue, one time revenue, ignoring one time charges and comparing to an aggregate Q3'05 # which had singinficant net income changes in flash and other revenue, and did not include GAAP reporting for stock expensing.

11:32 PM, October 17, 2006  
Anonymous Anonymous said...

AMD's going to be a train wreck tomorrow, and I'm going to revel in it. Not because I hate AMD, they're a good company, but because you people are such laughable idiots I love to see you in distress.

AMD will announce poor results tomorrow, and an even poorer Q4 outlook.

11:43 PM, October 17, 2006  
Anonymous Anonymous said...

Dialogic was sold for an estimated $50 million. That fits nicely in their books. They paid $780 million before the bubble many years ago.

Bad move to buy back then but good move to sell now.

http://pronexus.com/blog/blogs/1/
archive/2006/08/10/90.aspx

Cooking books?
Sharikou, you kill me!

I know you are a secret Intel fan, Sharikou.
The only Intel processor I ever got was because one time I got a dell Inspiron 8200, so I am no Intel fanboy, far from it, Sharikou, but the fact is...
You use reverse psychology to pretend to be a total AMD fanboy, but you make real AMD fanboys look bad and turn moderates toward Intel.
Give it up, Sharikou, I know your IP address is from within Intel HQ.

11:45 PM, October 17, 2006  
Anonymous Edward said...

As a investor one should notice that Intel is downsizing, and both its revenue and profit are decreasing, year over year (Q2 is seasonally the worst).

Lets say starting next year 50% of INTEL's production will be Core 2. This is a generous assumption surpassing Intel's own preduction. Even so, what will Intel do with 50% of its production at that point? It was already hard for Intel to sell Netburst in Q1 2006; how easy will it be selling Netburst in Q1 2007?

Intel's total revenue is about 8.7B, with pretax profit about 2.3B. That means, according to it current account, if 25% of its production do not sell, it will lose money. Yet 50%-75% of its production in Q1 2007 will still be Netburst.

One can only hope Intel to downsize faster to cut spending. It'd be interesting to see how Intel books the shrink.

11:53 PM, October 17, 2006  
Blogger Sharikou, Ph. D said...

You forgot to mention that Intel gained couple of percentage points market share..

Who said that? Wait you see AMD's results.

11:53 PM, October 17, 2006  
Anonymous Anonymous said...

I think Intel with is BRAND name and MONOPOLISTICS tactics as paid off the day.

I was in a computer store almost all PC where Intel P4 5xx and Intel PD8xx in other words, all CRAP!

Maybe the Conroes aren’t there yet or maybe they sell all them fast. I think it’s very bad that very poor products keep selling high, and very good ones don’t sell or don’t even get into the stores because of Intel tactics.
I would prefer an AMD 3500+ single core over one dual core Intel PD820.

Let’s see when AMD increases their production capacity if OEM will go more AMD and less Intel.

2:14 AM, October 18, 2006  
Anonymous Anonymous said...

I think the proper way to compare 3Q 2005 and 2006 profits without one-time charges is on an EPS basis. Profit in 3Q 2005 without the law suit settlement would be $0.35 EPS and 3Q 2006 profit without the $230M from sale of investments is $0.18 EPS.That's a _50%+ drop_, I would say that Sharikou is right on the money, when he says that the situation is much worse then it looks.

Moreover, what many fail to grasp is that AMD's increase in capacity is going to have a huge impact on the profitability of the entire market. AMD, as the lowest cost producer, is in an excellent position to benefit from this, although their margins will decrease. For every slightly superior offering of Intel (if any), AMD would just drop the price enough to win the sale. It's all about price/performance in most consumer markets, and price/performance per watt in the enterprise market, and AMD is still doing pretty well in the latter.

2:33 AM, October 18, 2006  
Blogger pointer said...

Edward said...
Even if inventory level remains the same (or becomes slightly lower), it still doesn't mean Intel selling 75% of its production well. Core 2 Duo was not on sale in Q2, yet Intel had been building up Core 2 for inventory 2-3 months prior to prepare for its Q3 launch. IIRC 20% of Q2 inventories were Core 2.

Now, how much of the Q3 inventories are Core 2, and how much are Netburst? Intel wouldn't say. It even wouldn't give a specific inventory number after several questioners asking. But a fair guess is that Core 2 inventory was down and Netburst went up.

Unless Intel could show its inventory going down significantly, it is not selling its older processors (75% of its production) well at all.


you really amazed me with your math and logic. I have explained this thought in some post long time ago and allow me to repeat again and just use the Q2 and Q3 intel data.

from Q2, intel inventory is about 4.2B (lazy to verify, shouldn't diff by much).
for Q3, intel revenue is 8.7B and inventory 4.4B.

8.7+4.4-4.2 = 8.9B new production/material. If you really think intel cannot clear whatever inside its inventory (just ignore the fact there are actually 2B+ inventry are work in progress and some material), it would just means intel almost sold whatever it made in Q3, and as you know, in Q3, Intel sold 5M C2D, which is about 2B (roughly guessed number). So, 6.7B are actually a mix of Core, PM, P4, PD, chipsets and other non IA products. This is significant. And it means intel sells its product well :)

Looking at this number, there is nothing wrong with intel planning Q4 with 25% of C2D and 75% the rest (Core, PM, P4, PD, chipsets, Itanium, others)

7:47 AM, October 18, 2006  
Blogger pointer said...

Sharikou, Ph. D said...

You forgot to mention that Intel gained couple of percentage points market share..

Who said that? Wait you see AMD's results.


I said that.

7:51 AM, October 18, 2006  
Anonymous Dr. Yield, PhD, MBA said...

From a MarketWatch article:

While the value of its inventory increased, Intel reduced the time its products sit in its factories worldwide. Its metric known as days of inventory slid to 92 days as of Sept. 30, down from 103 days for the three months ended July 1.

And Intel said while third-quarter inventory for flash memory chips and chipsets was up, its microprocessor backlog was down.



Conclusions:
Days of inventory down 11%. Not an insignificant reduction, as this reflects inventory in the context of how fast inventory is leaving.

Inventory numbers are being negatively impacted by softness in the flash market. CPU breakout is improving, not worsening. To me, this further supports the correctness in spinning off/selling the flash unit.

Personally, I'd like to see both companies do well, as they are both customers of mine. I just find you to be completely illogical, supporting conclusions with half-baked analyses that rely on your skewed world view.

11:54 AM, October 18, 2006  
Anonymous Anonymous said...

"Yet 50%-75% of its production in Q1 2007 will still be Netburst."

This is desktop and server ONLY - how many times are you going to make this mistake? Mobile is at least 30% of the business and GROWING (so using you're one sided # of 75%, it is 75% of <70% which is <50%...)

Assuming Core2 at end of year is more thaan 25% then total netburst prodcution is <<50%....

The fact that Intel is still producing only ~10-20% Core2 and inventory is essentially flat means old chips are still selling....it's only when AMD has enough capacity when Intel will have a hard time moving older products (even Sharikou acknowledges that). And by the time AMD has that capcity (~Q2?); P4/PD will be <20% production.

2:12 PM, October 18, 2006  
Anonymous Edward said...

While I sometimes disagree with Sharikou's a bit extreme point of views, I have to admit that he was right when he said you Intel fanboys have no clue. You are basically repeating two points:

1) Intel shipped 5M/2B Core 2, and thus 6+B revenue are still from P4.

2) Intel's Netburst is 75% of desktop/server volume only

First, 6B Netburst sales is large, but it is 25% less than 2Q (8.9B), which is already the seasonal low. It is not because Intel did not make enough (inventory actually went up slightly amid 100M write-off), but because it was more difficult for Intel to sell Netburst. It's a good job of Intel to have sold 6+B of Netburst, and I expect it to sell about the same if not slightly more in 4Q this year, but it won't be enough to reduce its Netburst inventory significantly. What will Intel do with 3B~4B Netburst inventory in 2007?

Second, even if we assume there will be no Netburst in the mobile sector (which is not true, but whatever), 75% Netburst of 70% desktop/server is still more than 50% of total volume. Conservatively, 50% of 70% is still 35% of total volume; that is, 1/3 to 1/2 of 1Q 2007 production will still be Netburst, with 3B~4B Netburst inventory sitting there.

Basically, anyone investing in Intel now should automatically write-off at least 3B inventory from asset in his mind. Well, unless he loves the company like his son/daughter and decide to ignore such sad grim fact.

5:51 PM, October 18, 2006  
Anonymous Anonymous said...

"First, 6B Netburst sales is large, but it is 25% less than 2Q (8.9B), which is already the seasonal low. It is not because Intel did not make enough (inventory actually went up slightly amid 100M write-off), but because it was more difficult for Intel to sell Netburst."

Not an economics major either, eh? Some other possibilities:

1) Could it be Netburst revenue went down due to sharp pricing changes? (You're mixing revenue and unit volumes which won't work because ASP's are not the same between the 2 sets of products)

2) A slight decrease in P4 mix due to ramp of Core2 ramping up? (This obviously would not account for 25%, but would be a contributing factor, especially given Core 2's ASP are higher average than Netburst)

3) How do you even know the revenue breakdowns for netburst as Intel doesn't provide this financial info... I assume you are approximating?

4) Do you know Intel's netburst production in Q3 - did inventory go up because they sold less or made more? Is the inventory for netburst up or is it Core2 or is it Core1? As inventory #'s are not broken down and you are talking about something like a 3% change where the heck are your #'s coming from... don't confuse volume with revenue (again, ASP's are kind of different between netburst and Core 2...)

The final flaw in your analysis is that your are assuming that:
- Intel's inventory will remain in 3-4Bil range AND
- it will remain primarily netburst despite the fact that netburst will be ramping down between now and Q2'07.

Your analysis COULD be correct but there are just too many variables for it to be conclusive (inventory mix, production mix, sales rate of P4 vs Core 2, industry growth rate, AMD capacity growth rate...).

The real question is whether the sales rate of Netburst (vs Core2) will be greater or lower than the rate at which Intel scales down Netburst production.

If the sales rate is lower than netburst inventory will actually increase, if it is greater than netburst inventory mix will go down. This of course doesn't even factor in AMD's capcity growth rate and the industry growth rate.

7:47 PM, October 18, 2006  
Anonymous Anonymous said...

"1) Intel shipped 5M/2B Core 2, and thus 6+B revenue are still from P4."

Such crappy math scales/financial acumen...

Take a more careful look at Intel's statement - look at flash, chipset, other revenues....In fact I'll dumb it down for you - just look at DEG revenue for Q3! You can even assume all mobile is P4 and you still won't get 6Bil when you subtract out your 2Bil Core 2 revenue.

8:01 PM, October 18, 2006  
Anonymous Anonymous said...

To Shari-kook and Edward (or should I say Enron accounting hopefuls?)

INVENTORY IS NOT JUST FINISHED GOODS!

1) If you actually take the time to read the financial statment you'll see Intel's finished goods inventory was 1.68Bil and this would include everything Intel makes (netburst, Core, Core2, chipsets, wireless, flash, motherboards...)

----> Let's assume 100% of this is P4 (which is of course, absurd). That gets us started with 1.68Bil.

2) 2.3Bil is work in progress (wafers still in fab, at packaging, etc) - again this includes all products Intel sells, not just netburst. Note this WIP is more representative of Intel's current production mix not the Core 2 sales mix reported in Q3 statement. It also includes flash WIP, chipset WIP, mobile WIP (P4,Core,Core2) and DEG WIP (P4,Core2,itanium)

While Intel doesn't breakdown unit volumes, as DEG is ~60% of all Intel revenue and not all of DEG is P4. I'll assume P4 is 50% of the overall WIP. (This is pretty crude)

---> Thus as a crude approximation this would add another 50% * 2.3Bil = ~1.15Bil

3) Finally 0.54Bil is raw materials which has nothing to due with P4/Core2/chipset/etc...

---> This would add another $0 to P4 calculation

So summing up 1.68Bil+1.15Bil = ~2.9Bil out of the $4.5Bil or ~65%...

and again this is assuming all finished goods in inventory are P4 only (no chipsets, flash, Core, Core2)

Any thoughts?

Or are you still going to contend virtually all of the $4Bil is still P4? What was it Sharikou, 90% at last report?

8:38 PM, October 18, 2006  
Anonymous Edward said...

"1) Could it be Netburst revenue went down due to sharp pricing changes? (You're mixing revenue and unit volumes which won't work because ASP's are not the same between the 2 sets of products)

2) A slight decrease in P4 mix due to ramp of Core2 ramping up? (This obviously would not account for 25%, but would be a contributing factor, especially given Core 2's ASP are higher average than Netburst)"


I have to say your other points/doubts on my analysis are fair enough, except the two above.

First, I've always used revenue volume. Yes, the less revenue other than Core 2 could be due to price drops, and there are a significant amount of other products (chipset etc.) in the mix. But the fact remains that Intel was not able to disgest Netburst inventory fast enough.

Second, I believe the Netburst mix actually went up in 3Q inventory, because in Intel had been stockpiling Core 2 by the end of 2Q. Of course Intel would not disclose the exact split, no matter how the questioners have asked.

12:29 AM, October 19, 2006  
Anonymous Edward said...

"Such crappy math scales/financial acumen..."

I was posting the comment based on pointer's pretext at 7:47 AM, October 18, 2006. I apologize that I was too lazy to quote him properly.

12:33 AM, October 19, 2006  
Blogger tobyw said...

But since there is so little relative Core2 production and so much fixed COGS, Intel starts out with a loss without the sale of brown bananas. 45nm will give excess capacity, sooner to BR. Fabs must be selling relatively near capacity to make profits.

3:58 AM, October 19, 2006  

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