Intel Shifting . . .

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Quietly Making Money

In the pricing wars, there was a ceasefire this quarter. Intel and AMD pretty much left each other alone. That combined with a bigger than seasonally usual upsurge in CPU sales gave both of them much better financial results than could have been guessed three months ago.

Intel basically sold 15-20% more processors and got the same amount of money for them. They also did a good job of keeping costs down, so it didn’t cost them any more to make that 15-20% more.

So an extra billion dollars in revenues meant another billion in profits from the processor division.

The CPU-making business is what gets called a high-fixed cost, low variable-cost industry in accounting circles. What that means is CPUs don’t cost a lot to make, but the equipment you need to make them costs an arm and a leg. A fab plant costs billions of dollars whether you make a hundred or a hundred million CPUs with it.

This means that when times are good, extra sales are almost entirely profit. When times are bad, on the other end, you can’t cut expenses like you can in other businesses. You can’t give half the fab back.

This quarter, times were good, so Intel did well. They’ll probably do even better next quarter.

Where The Growth Is

What is probably the most significant trend in the financial numbers is not what Intel sold, but where.

Since the third quarter of 2002, sales in the Americas have gone up less than 4%.

Since the third quarter of 2002, sales to Asia-Pacific have gone up over 31%.

Let’s compare Intel’s figures in the recent past (all figures from the third quarter of that year):

Region

1997

1998

1999

2000

2001

2002

2003

Americas

48%

47%

45%

42%

37%

32%

28%

Asia-Pacific

19%

20%

23%

27%

31%

38%

42%

Europe
24%
26%
26%
22%
25%
23%
21%
Japan
9%
7%
6%
9%
7%
7%
9%

Perhaps this set of figures might be more impressive:

Revenues From

3Q 1997

2Q 2003

Americas

$2,954

$2,168

Asia-Pacific

$1,108

$3,266