Intel Results . . .

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Intel released its results last night. They made a billion and a half dollars last quarter. That’s a little better than they’ve done the last few quarters, but nothing earthshaking.

What do you need to know about it?

It’s the Desktop, Dummy Intel is making considerably less money than it did a year ago. Why? The major reason why is
that it is making much less profit in the desktop market, roughly about $1.3 billion less. The notebook section is actually doing pretty well, for the last
couple quarters, Intel has made rather more profit from notebook CPUs and chipsets than desktop CPUs and chipsets.

The desktop numbers look better this quarter, but given that it’s the Christmas quarter, they should. While Intel may have grabbed some marketshare back, at most it wasn’t much, and it probably was pretty much the same as last quarter.

It’s very easy to just say, “price war,” but one ought to keep in mind that for Intel, “price war” has meant old stuff, while for AMD, “price war” has meant current stuff. There’s been
no price war on Core2Duos, yet. Prices have stayed solid on those. Intel still hasn’t made terribly much new stuff yet, the percentage of C2Ds in the product mix will skyrocket the next two quarters.

Under normal circumstances, that would mean that Intel’s financials will look a lot better the next couple quarters. Does that mean happy days will be here again for Intel?

Not really Happy days for Intel happen when their gross margin hovers around 60% (gross margin means the level of profit before taking out indirect expenses like administration and marketing). Right now, Intel is at about 50%, and they said in the earnings release that they don’t expect that to change much in 2007.

How come?

No doubt a good chunk of that lower margin will be due to selling off old stuff at greater and greater discounts early in the year, but as the old stuff goes away, it looks like Intel will start discounting the C2Ds enough to keep AMD miserable, probably starting the second quarter.

Last quarter, ASPs for Intel went up, while they went down for AMD. Intel made $1.5 billion dollars with a 50% gross margin; AMD probably did little better than broke even in the CPU sector with about the same margin.

Intel’s numbers may not be any great shakes the next few quarters, but they’ll ensure that AMD’s will be worse, and that’s the idea.

Same Old, Same Old

I’m afraid the AMD/Intel competition is settling back to the old “Intel screws up, AMD takes advantage for a while, then Intel gets the upper hand and beats them up until they retrench.”

History shows this to be the case. AMD grabbed some marketshare with its Thoroughbreds after Intel ran the PIIIs into the ground. It did the same and more with Hammers when Intel ran the PIVs into the ground.

However, once Intel stops screwing up, AMD can’t sustain the lead, largely because Intel can spend its way out of problems in ways AMD can’t. Once that happens and Intel gets the upper hand, Intel proves that size matters, shoves AMD into the low-end market, and it turns into the Mr. Bill show again until AMD retrenches.

And yes, Sluggo Intel has done some nasties to AMD in the past, and that lawsuit might deter Sluggotellini from repeating the meat grinder trick on Mr. Hector, but the core imbalance: Intel has money, AMD doesn’t, remains.

We’ll talk more about this after AMD releases its earnings next week, but that’s the cycle, and it looks like it’s going to repeat itself in 2007.

Ed


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