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Intel Should Exit Mobile, Analyst Says

5/7/2014 07:30 AM EDT
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ngockonvang
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friv 2
ngockonvang   5/9/2014 11:26:50 AM
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Excellent and decent post. I found this much informative, as to what I was exactly searching for. Thanks for such post and please keep it up.
friv 2 | friv 10

geekmaster
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Re: Intel should enter memory business
geekmaster   5/8/2014 8:48:23 PM
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Intel already was and is involved in memory with Micron (IMFT, Fab 18 in Quirat Gat)

sprite0022
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Intel should enter memory business
sprite0022   5/8/2014 8:32:50 PM
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another area intel is missing is memory, it's getting fat again.

35% margin and low entrance bar.

intel can make a tech leader in 1 year and utilize it's capacity.

Wilco1
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CEO
Re: Markets are won and lost in transitions - 64-bit is coming
Wilco1   5/8/2014 4:45:26 AM
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The 64-bit transition is actually a minor one because 64-bit CPUs can still run all existing ARM code, so there is no reason to switch to a different ISA. Companies are switching on masse to 64-bit ARM. So the market has already chosen.

The fact is, JP Morgan has a point - Intel has been losing many billions per year over the last few years trying to get into mobile without any success at all. So it is not just about this quarter but about the last 24 quarters. There comes a time where they have to admit it was crazy to push x86 into a mobile. Their latest Silvermont has already been beaten on performance and power before it even made it into a phone...

Sheetal.Pandey
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Re: Do the math
Sheetal.Pandey   5/8/2014 4:38:52 AM
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Intel might make some profit in tablet market as they are a brand seen closeness to PCs but mobile its so very difficult. It will be another player in the smartphone market. There is enormous amount of competition. ALmost every company that has presence in semiconductor wants to try out smartphone.

Bruzzer
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Do the math
Bruzzer   5/7/2014 3:48:54 PM
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So here are some production facts, Intel economists and industrial scientists don't talk about, or don't want to talk about, today. 

On 2013 financial Intel's fully burdened total cost of platform sale; microprocessor and its support components sold in the bundle deal, is $256 average total cost, $147 average fixed cost.  Average total cost is determined PE&C < Dep + R&D, + Sales + Marketing + Intel Inside price fix cost / total processors produced.  Average fixed cost is determined PE&C < Dep + R&D / total processors produced. Every product priced below these cost rungs, where AMD is forced too compete under conditions or production monopoly and distribution cartel, is subsidized by other Intel products priced in excess of average total and average fixed cost. Every time Intel sells product priced below these cost rungs, the result is a marginal revenue loss. This is a simplified way to look at cost within this general financial framework.

Pursuant to mobile economic assessment of cost price delivers a more precise result:

Haswell Quad Mobile average weighed price bin split exact determined on 1K price is:

Average Weighed Price $504.65

Average Marginal Revenue $353.83

Average Marginal Cost $150.82

Haswell Mobile Desktop and Quad Runs Combined on 1K (they are all the same parts):

Average Weighed Price $398.45

Average Marginal Revenue $346.31

Average Marginal Cost $52.13 (this is the more realistic of the two quad cost answers)

Haswell Dual Mobile SIP i7, i5, i3 average price bin split exact determined on 1K price:

Average Weighed Price $352.76

Average Marginal Revenue $308.93

Average Marginal Cost $43.83

To get a more precise Intel cost : price ratio removing the dealer's cut of Intel margin value:

The general rule to determine Intel first tier dealer price is AWP on 1K / 2. 

The general rule to determine Intel marginal revenue is (AWP on 1K / 2) / 2

The general rule to determine Intel marginal cost is [(AWP on 1K / 2) / 2]

The general rule to determine Intel hard dice fabrication cost is [(AWP on 1K / 2 ) / 2] / 2

In these technologic times Intel relies on the production metrics of a brick fabrication plant, or, in the ancient Scot or British vernacular of semiconductor production; a kiln operation.

Haswell Mobile Desktop and Quad Runs Combined (they are the same parts):

First Tier Dealer Price $398.45 / 2 = 199.25

Intel Marginal Revenue = $99.62

Intel Marginal Cost = $49.81

Intel Hard Dice Fabrication Cost = $24.90

Haswell Dual Mobile SIP i7, i5, i3 average price bin split exact determined on 1K price:

Average Weighed Price $352.76 / 2 = $176.35

Intel Marginal Revenue = $88.11

Intel Marginal Cost = $44.08

Intel Hard Dice Fabrication Cost = $22.04

Revenue can also be considered applying gross margin then / 2's

Haswell Mobile Desktop and Quad Runs Combined (they are al the same parts):

Average Weighed Price $398 / 2.* .63 = $125.54

Intel Marginal Revenue = $62.77

Intel Marginal Cost = $31.85

Intel Hard dice Fabrication Cost = $15.69

Haswell Dual Mobile SIP i7, i5, i3 average price bin split exact determined on 1K price:

Average Weighed Price $352.76 / 2.* .63 = $111.94

Intel Marginal Revenue = $55.55

Intel Marginal Cost = $27.14

Intel Hard Dice Fabrication Cost = $13.88

Now let's look at Bay trail SOC

Bay trail full run taking into account 't' for android tablet, 'm' for mobile Chrome and MS 8.x, and 'd' for Celeron Value line that is also 'i' for embedded upping package for better thermals.  Noteworthy,there is nothing value about the Pentium branded Bay trail 'm' incorporating $18,313,509 in consumer monopoly overcharge values, in this case a tying dealer value, associated with 2,850,467 of the Pentium branded Bay trail 'm' when sold at one unit price greater than $160.

Bay trail short run 'm', 't', 'd' Average Weighed Price:

Average Weighed Price bin split exact 'm' = $151.54

Average Weighed Price bin split exact 't' = $32.46

Average Weighed Price bin split exact 'd' < 'i' whose

percent break out is currently unavailable = $81.59

When 'm', 't' and 'd' are combined for average across the full run:

Average Full Run Weighed Price = $97.93

Average Full Run Marginal Revenue = $68.66

Average Full Run Marginal Cost = $ 29.77

Intel Hard Dice Fabrication Cost = $29.77 / 2 = $14.85.

On Bay trail $5.50 China white box price Intel looses $9.35 per processor.

$14.85 - $5.50 = ($9.35)

Now consider the 't' for tablet short run alone:

Average Weighed Price = $32.46 (which happens to be the average of 1K price)

Average Marginal Revenue = $22.76

Average Marginal Cost = $ 9.70

Intel Hard Dice Fabrication Cost = $4.85

And consider the 'm' and 'd' short runs combined

Average Weighed Price = $134.58

Average Marginal Revenue = $94.36

Average Marginal Cost = $ 40.22

Intel Hard Dice Fabrication Cost = $20.11

So is Mr. Krzanich's stated Bay trail 't' subsidy the actual dice fabrication cost of the other two Bay trail grades 'm' and 'd'; $20.11?

Also notice the marginal revenue loss between the combined 'm' + 'd' runs verse tablet alone; $94.36 - $22.76 = $71.60. That is Intel's actual revenue loss over the full run for every unit of bay trail allocated to tablet.  Opportunity cost of selling 10,000,000 bay trails into Android or MS 8.x tablet over Chrome book and Value mobile delivers a $716,000,000 marginal revenue loss.  Allocating into embedded 'i' adds to that marginal revenue loss considering 'i' 1K price range $31 to $52.

If you haven't noticed lately a lot of those Bay trail 't' grades have just been supplied into the industrial embedded market as Bay trail 'i' grades that is a Tunnel Creek replacement.

Bay trail 'i' is aimed to knock ARM derivatives out of the embedded compute modules product categories, where Freescale I.MX6, is just hanging on given price for the applications feature set. I.MX7  and 8 have been annoucned.

There is another way to look at this, please see Mr. Groff's analysis in Seeking Alpha, Intel Tablet Contra Revenue Will Cost About 3.5 Cents Per Share in Q2, April 17, 2014.

 See http://seekingalpha.com/article/2146613-intel-tablet-contra-revenue-will-cost-about-3_5-cents-per-share-in-q2

Mr. Groff calculates Bay trail contra revenue (per platform device production subsidy), on Mr. Kranich' 5,000,000 q1 2014 volume statement from the financial conference call at $178,000,000 in q2 2014.  Mr. Groff's assessment in Seeking Alpha explains why. 

Now this example calculates for Bay trail unit volume against Mr. Groff's $178,000,000 quarterly subsidy estimate.

$178,000,000 / Bay Trail Full Run Marginal Revenue $68.66 = 2,592,428, is roughly one half of Mr. Kranich's q1 2014 volume statement of 5 million units supplied.  Taking into account Mr. Kranich's guidance of 5 million 't' units supplied into tablets delivers an interesting result; $178,000,000 / 5,000,000 = $35, the median of Bay trail tablet average price. Meaning Intel is giving Bay trail 't' for tablet away in the platform subsidy deal at 1K list price.

On the simple AWP / 2 method to find marginal cost = $17.5, or using gross revenue method $35 * .63 = $22.05; that is marginal revenue on economics, delivers these results:

$178,000,000 / $17.5 = 10,222,222 units that include a potential Intel cartel signal.  

Or, on the latter, $178,000,000 / $22.5 = 7,950,617 units. 

Now what if Intel provides Bay trail 't' approximately at marginal cost; $8.75 and  $11.37 per processor respectively. 

$178,000,000 / $8.75 = 20,444,444 units.  Again a signal? 

Or, on the latter, $178,000,000 / $11.37 = 15,733,411 units

Now what if Intel provides Bay trail 't' approximately at hard dice fabrication cost,

$4.38 and $5.68 per processor respectively. 

$178,000,000 / $4.38 = 40,842,211

Or on the latter, $178,000,000 / $5.68 = 31,494,522 units. 

In both examples hard cost is less than marginal cost.  Price $4.38 to $5.68 < Marginal Cost on Economics $9.70 = Areeda Turner Price < Cost Trade Commission Review.  

So what is Intel's contra revenue subsidy strategy?

Intel strategy is to price Bay trail 't' progressively down tablet short run marginal cost curve to run end hard cost, to reach their  40,000,000 unit supply objective. And appears too be doing so already, addressing the very low end of China, Android Tablet market.

But there's more.  And that is called the 22 nm to 14 nm transition.  Lacking a shrink, or bumping into production obstacles, q3 2014, aiming for 60,000,000 units, Intel marginal cost can go through the roof.  And that will really add to the Bay trail tablet platform subsidy. 

Mike Bruzzone, CampMarketing

rgrutza600
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WEBMASTER ATTENTION - Gray text
rgrutza600   5/7/2014 1:44:22 PM
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Whoever is in charge of the eetimes website.  Get rid of the grayish text for articles.  It makes them look awful and hard to read.

meteore
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Re: Wall Streeters!
meteore   5/7/2014 1:41:48 PM
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Indeed classic, stop investing in the future and let Wallstreet grab the money! Because they know way better than us about how to waste it.

BrainiacVI
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CEO
Re: Wall Streeters!
BrainiacVI   5/7/2014 1:41:14 PM
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@Rick, I agree. This is why we can't make good things. The bean counters want immediate returns. I remember when the US abandonned LCD manufacturing to the Japanese because they didn't project positive earnings for 10 years.

Jessica Lipsky
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Re: Wall Streeters!
Jessica Lipsky   5/7/2014 12:59:08 PM
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It seemed the EPS gains JPM suggested by leaving the mobile market could be miniscule compared to the possibility of revenue from a major design win in the mobile sphere.

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