Slowing Down or Screwing Up?

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There are reports that Intel is having multiple problems with the notebook Montevina chipset, namely 802.11n and integrated graphics.

OK, the analyst gave us a couple howlers; he apparently thinks Centrino is a CPU, but having integrated graphics fail and not being able to get FCC certification are no laughing matters.

I don’t know, but between Penryn delays and fab delays and we’ll take our sweet time making mainstream Nehalems and you won’t be able to overclock most of them and now this, my gut tells me the good ship Intel is springing some leaks.

If AMD’s real slogan ought to be, “No money made us what we are today,” Intel’s should be, “Pride goeth before the fall.”

Intel just doesn’t tolerate good times well. When it happens, they do something very odd; they simultaneously slack off and get more arrogant.

If lack of money is the core factor that warps AMD’s behavior, extreme profit margins is the bugaboo for Intel.

What do I mean by that? In three words, gross profit percentage. It’s an obsession over there.

Granted, Intel (and any other successful CPU company) needs a much higher gross profit margin than, say Walmart simply to pay for the multiple multibillion dollar fabs and the multibillion dollar R&D budget.

But what you see at Intel is that they’ll report a few billion dollars in earnings for the quarter, post, say, a 58% gross profit margin, and all the analysts can say is, “Why isn’t it 60%?” Yes, 60 is bigger than 58, but it isn’t that much better. Or Intel says that ramping up a new generation of processors will cut gross profit percentage by a point or two, and the analysts act like Otellini has just declared bankruptcy.

Yes, changes in gross margin percentage at a company like Intel do affect real profits more than in most companies, so there’s some legitimate reason for the obsession.

But that obsession ends up putting tremendous pressure on Intel to avoid “extra” expenses to fix problems that could hurt that beloved measurement short-term. The problem is the problems don’t go away, eventually they become unavoidable, and Intel ends up on the sidelines for a while, giving AMD another chance to shine for a while.

That’s essentially why Intel ran the PIII and PIV designs into the ground. They knew they had heat problems with both, and they knew really fixing the problem would be very expensive. So they didn’t. When the PIII blew up, they ducked the problem with the PIV design, and they didn’t bite the bullet until Prescott nearly melted on them.

I very much doubt heat is Intel’s problem now, but just like lack of money is almost always the root cause of a particular AMD failure or bizarre decision, the pressure to push that gross profit percentage just a little bit higher is likely the root cause of any problems/delays Intel is having/will have.

Ed


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