Thursday, December 21, 2006

A prediction for Intel & Apple

Here's one for you guys...I'm yanking this completely out of my imagination. Since it's Christmas, I figured what the heck, there's no harm in asking:

In 2007 Apple will launch an "Ultra Mobile PC" based on Intel technology. This product will potentially come around the same time as their IPTV set top box. It will coincide with the launch of a full fledged video/movie service from Apple. Possibly, Apple will take some of the technologies in Viiv & Robson (instant on/off; multi users, flash memory for faster boot and potentially storage of content for CE functionality w/o having to load the OS; etc). It will come with a remote control. If all my fantasies were to come true, it will have a docking station connected to my TV/home entertainment system so that I can just dock it when I'm home and use it as my movie/music player. And if I'm specially good, Santa will throw in high bandwidth wireless connectivity so I can download movies and music from iTunes anywhere in the house.

What do you think...? Is Santa (or perhaps Steve) listening?

Wednesday, December 20, 2006

AMD heading for a GAAP loss

Back in September I had forecasted AMD would be heading for a GAAP loss in Q1 or Q2 2007:

Having seen Bob Rivet's presentation at their recent Analysts Day, I think it's time to reiterate that prediction for the following reasons:

1. While AMD eked out a 56 million $ profit in Q306, ATI lost almost the same amount. does not look like ATI is going to win back market share from Nvidia in a hurry.
2. Their Q306 adjusted debt to capital ratio is at 37%. Of their plans to bring this down, I think "Improvements in working capital" & "Using excess cash flow" are questionable as they seem to make the assumption that they will continue to enjoy the same kind of profits they did in 2006. We shall have to wait and see on this one.
3. There is a 380 million $ acquisition related (intangibles/synergy related costs) write down which Rivet says will be front end loaded in 2007.

All this is going to impact their bottomline. I repeat - AMD is heading for a GAAP loss in either Q1 or Q2 2007. Intel on the other hand seems to have dodged the bullet the good Doctor Sharikou has been asserting and it looks like yet again one of his predictions is going to fall flat...since it is highly unlikely Intel will have a GAAP loss in Q406. Which incidentally was the fall back position when they did not have a GAAP loss in Q206 as he had originally predicted.

Google and Apple are on a collision course

Some time ago I wrote about how Apple was determined to become the Walmart of digital content:

After Google's 1.4 billion $ purchase of Youtube, I now believe Apple's biggest threat long term will be Google. Why...? It's because Google wants to ensure they own every online touch point possible to sell advertising. But not just any advertising. Google's promise is to sell effective advertising because it's targetted. In order to do this, over the long term Google will need to go significantly beyond regular search and own the digital entertainment content touch points. And not just "user generated content" or the boring television from the 70's they started out with on Google video. They will need to own what's hot and what's new. And this is what Apple wants to own too. The difference is Apple wants to sell you the content and Google wants to sell advertising on the content.

So either these guys are heading for a show-down, or they are heading to a partnership which shakes us all down by either selling us content or giving us content but selling advertising on that content. Perhaps now Otellini's presence on the Google board and his willingness to bend over backward for Steve are making a little sense. I thought it was only due to the fact that the 60,000 google shares he got are worth significantly more than his Intel holdings but perhaps I was wrong.

Thursday, December 14, 2006

4x4 - it's a Hummer...not a Merc

I was reading this letter on The Inquirer (before you jump for your guns - I'm going to slay their opinion shortly) about how the 4x4 is the PC equivalent of a 400 horse powered Merc and not a Toyota and I had a violent convulsion of disagreement resulting in this post:
(Pls read the article before reading the rest of the post)

Unfortunately, the dynamics and business models of the car business and the microprocessor business are two different least this point in time (I'll talk more about how they could be converging in a later post).

1. The car industry is hyper-segmented with multiple models serving niche markets. A couple of hundred thousand units make a product/brand a viable proposition due to how their design and manufacturing allows them to optimise across. Further more, cosumer decision making works across multiple axis from speed, mileage to all the bells & whistles inside the car which allow easy brand/product differentiation.

The microprocessor business however has two primary vectors of comparision. Performance and now power consumption as a recent phenomena. Hence, everyone is expecting more performance with all the benefits of reduced power consumption (lower electricity bills, less heat, smaller form factors, etc).

2. In 2005 the Mercedes car group sold ~1 million units. Of which their top of the line models contributed only 72k units. In the microprocessor business the same does not hold true. At least for now. If AMD were to operate at the same scale as Mercedes and sell only 72k of it's top of the line product then it would be meeting with it's debtors pretty soon.

Now, I know I'm pushing it a bit using these two as a comparision but it's to make a point. The business models and scale of both these industries is vastly different. Can you imagine someone walking into Hector's office and telling him they will sell only 72k units of their top of the line platform.

3. The Merc is what it is because it is not only powerful, but also a thing of beauty. Unfortunately, the 4x4 is a loud, ugly beast. Which is why I think it's more a Hummer if we have to draw a parallel. Allows you to drive everywhere - on and off road but is expensive, pig ugly and guzzles gas faster than an 8 year old can eat candy.

The only bright spot for AMD if they follow GM's model is at least the sales of Hummer's seem to be increasing YoY. They've sold 65k of them so far in 2006.

Monday, December 04, 2006

Quad FX - or is it Quad just for effect

Reviews and pricing for 4x4 are out comparing it to Kentsfield. Here are some of them:

I'm not the right guy to dissect the technical details but there are two things I was expecting:

1. This will be a power hungry, large and loud beast of a system. Which is correct.
2. That this would be a hard kick in the performance cojones for Kentsfield. Which to my astonishment is not correct.

From a pricing standpoint...this thing is priced extremely agressively (in pairs):

2 x FX70 = $599
2 x FX72 = $799
2 x FX74 = $999

Considering the FX62 is at 713$, this is quite a steep price drop. However, the issues with the system price overall is the cost of the mobo and the fact that there is only one supplier - Asus. My hypothesis is that AMD knows at this point Quad FX is only a marketing ploy. It is not a market winning solution until they bring out Barcelona. Hence, they do not want to enable all their partners at this stage until they have a better sense of whether they want to market Barcelona by itself or as part of Quad FX.

Having seen that the performance is not spanking Kentsfield, I think Intel will now accelerate their quad core ramp. They will bring pricing further down in Q107. Their intent will be the same as it was on dual core. To make quad core mainstream faster than expected and hence place supply and capacity pressure on AMD. Their hope will be AMD cannot ramp Barcelona fast enough and Quad FX is hardly a mainstream desktop solution. Hence, customers (starting with channel I guess) will once again feel AMD is unable to meet their needs.

So do expect Kentsfield to drop below 999$ in Q1. I'd assume this will be accompanied with a new SKU with a higher clock speed just to land a 1-2 punch on AMD.


Anandtech in his review shows a Quad COre at 2.4GHz in Q1 priced at $851. So Intel will bring Quad Core mainstreamish fast.

Intel Core 2 Extreme QX6700 2.66GHz 4MB per 2 cores $999
Intel Core 2 Quad Q6600** 2.40GHz 4MB per 2 cores $851
Intel Core 2 Extreme X6800 2.93GHz 4MB $999

I suspect the scenarios AMD is playing with right now are:

1. If Barcelona kicks Conroe's performance and perhaps more importantly performance/watt ass then 4x4 will die an unnoticed death.

2. However, if Barcelona does not completely wipe the floor with Conroe. Even if it's better but only marginally better then AMD will increase the focus on 4x4 and try and bring platform price and thermals down. They may even introduce dual core flavours of Barcelona (not sure if this is already on their public plans) to drop into 4x4 just as Intel is potentially introducing single core versions of Conroe for the lower end of the market.

Of course, everyone (including me) are assuming Barcelona will wipe Conroe off the map. But I was also expecting 4x4 to do the same to Kentsfield and that is not the case so let's assume nothing till we see it for ourselves.

Monday, November 27, 2006

A quick note on Dell's Q3

I've been away and pretty busy but I wanted to do a quick note on Dell's Q3. This was obviously a strong rebound for Dell in terms of revenue and more importantly profits even though HP grew share faster than them. I think primarily this quarter their move to Opteron in servers has definitely helped them. I also think their focus on trying to move their higher margin products has helped somewhat. But long term I continue to remain concerned by their lack of new strategic direction.

Their growth in China also I think will come under threat over the next 3-4 quarters as Lenovo trains their sights on Dell. And HP will not be happy knowing that Dell is managing to grow in spite of the fact that they have wrenched the #1 spot from them. All in all, I think Dell will probably have a good Q4. But by Q1 Lenovo and HP will start to attack them in desktops & servers respectively. Which means unless HP gets their act together Dell does have a relative opportunity in the notebook business. I am doubtful their Q3 results were really helped by their move to Turion since that was much later in the quarter. I suspect what happened their is they had their sales people focus on selling up in what is a very rapidly growing category.

Thoughts everybody...?

Friday, November 17, 2006

Intel increases dividends starting Q107

Intel increases dividends

After announcing a Q406 dividend, which I discussed here:

To further raise the dividend is not the sign of a company worrying about their cash position. What's going on here? Something has happened to give the board confidence that they can not only afford a dividend, they can increase it.

Wednesday, November 15, 2006

Nvidia making out with Intel - I called it in September

I had said back in September that Nvidia and HP would get more aligned with Intel post the ATI acquisition. The Nvidia piece of that has started to materialize.

I'm thinking this is only the first step and there will be more to come between Nvidia and Intel. To read the original post, go here:

New Bed-fellows

So far this week that's 2 predictions come right - this and the demise of the PIC.

Monday, November 13, 2006

PIC is dead - I called it in September

In their quarterly filing AMD cancelled PIC. Scroll down to page 32:

AMD Q3 filing

I called this back in September when I said the cash being spent behind the ATI deal would force Hector to review which projects he continues to fund and perhaps the PIC would disappear.

New Bed-fellows
(Scroll down the post)

The point is not PIC itself which has very little material impact on AMD"s revenues. The point really is that AMD will have to now start to manage cash and debt very carefully and they will not be able to invest in as many areas as they have been. The second message in here as that Hector's 50x15 vision becomes only rhetoric. Which is unfortunate for the people who could have benefitted from it...but that's life. In this case, they definitely lived up to their slogan of "Smarter Choice". Just it was the smarter choice for themselves this time round -:)

Thursday, November 09, 2006

The Doctor is making money off Intel

The good Doctor of Pervasive 64 bit Disinformation has started running Google ads. I have nothing against this. All power to him if he can make money writing what he writes best. However, what I cannot understand is that he has ads promoting Intel products on his page. Surely his ethics would prevent him promoting Intel's products since he believes they all deserve to be consigned to a landfill. I left him a post yesterday asking what was going on but he did not post my comment. Here's the screen grab:

See it for yourself:

I tried clicking the ad links at the bottom of the page...
Link to article

...and for 3 out of 4 the first link on the subsequent Google ad page took me to Intel's web site. That's just hilarious man! I really hope the Doctor is getting a good laugh too...hopefully to the bank with all the money I hope he's making from Intel via Google.

Dell deploys Quad Core

Dell with Quad Core Xeons on day 1. That's some time to market and endorsement:

This is where the rubber hits the road and all the talk about K8L disappears into thin air as the product still does not exist. At this point all the dudes who are fantasizing about how AMD's quad core will kick Intel's ass get a dose of reality. It doesn't matter if your architecture is superior. If the product isn't in the market you ain't selling it. By Q2 Intel will have introduced more flavours of quad core desktop parts and dropped prices significantly below 999$ which is the launch price. In Q2 (hopefully) or perhaps Q3 AMD will introduce their quad core part but will not be able to price it in the same range as Intel will have almost a 3 qtr advantage to stabilize yields and reduce manufacture costs on the part. AMD will then have to play catch up again as Intel begins 45nm late 2007 followed by new mArch in 2008.

On a seperate but related note, Apple introduces the new Macbook with Core 2 Duo.

Welcome to the party. It's about to get interesting!

The opening line was meant to be "Dell with Quad Core Xeons on MINUS day 1. That's some time to market and endorsement:"

The implication here is the official Clovertown launch is actually 14th Nov. Dell has jumped the gun and also jumped every other OEM. There's a message in here and it's a Dell message...not Intel or AMD. Dell needs to win in servers to drive their margins up. Specially since they are losing share to HP.

Wednesday, November 08, 2006

Whose CPU margins are better

A very quick note. There is some wild gesticulation from the AMD "fannies" that AMD's CPU margins and cost structures are better than Intel's based on some ridiculous calculations (which I have already pointed out are baseless) from my good friend the Doctor. Here's why this is inaccurate and just a bunch of hand-waving from the AMD fans:

1. In Q3, Intel and AMD's gross margins were almost identical. However, AMD's margins are only for the high margin business of CPUs while Intel's are for CPUs + other businesses with significantly lower margins like flash, chipsets, mobos, etc. Furthermore, businesses like flash are actually a drag on profits recording a 116 million $ loss in Q3. On a CPU revenue of 5.8 billion out of a total 8.7 billion Intel's CPU margins would be significantly higher than the ~50% it recorded.

2. If AMD's margins are so good, why is it that it's net income for Q3 is only 1/10th of Intel's in spite of the fact that it's CPU revenues and market share are roughly 1/4th Intel's. And this is after Intel's net income being reduced by ~740 million due to Flash and Other losses.

The answer to both these is simple. Not only is Intel's cost structure better, it's ASPs are higher in the CPU business.

Sunday, November 05, 2006

Channel unhappy with AMD

First - I have been pretty busy last couple of weeks to post regularly to the blog. Instead, I've been trying to ensure comments get through and I can respond. Hopefully things will ease out this week and I'll be able to finish my Q3 take which has been in draft for some time. This post isn't a deep analysis. It's more to confirm the DIY channel frustration with AMD for shorting them on supply is starting to become visible with more re-sellers becoming vocal:

The impact of this to AMD is if this festers for another 2 quarters then it will take them a long time to win back channel trust/confidence even if supply does normalize. Those who work in the industry will understand this. Those who don't will issue blistering comments that they day AMD's supply problem is resolved, the channel will come running back to them. But that's not the way it happens. For the small guy round the corner, he feels screwed when either AMD or Intel give deeper discounts or supply preference to the big OEMs. It makes it incredibly hard for them to compete and watching a sale walk away because you didn't have the product is like seeing food on the table disappear. Intel has taken 2 years to recover from the chipset shortage. If this precipitates for AMD, they will lose a significant amount of channel momentum which will hurt them late next year once 65nm is ramped.

Thursday, October 26, 2006

Dell launches sub 500$ AMD notebooks

I want to start by saying this is NOT GOOD FOR AMD. (this link now needs a log in)

If you look at my posts/comments over the last few days I have been saying Dell is dragging AMD down the price stack and squeezing them on pricing thus hurting margins. I am now convinced this is what is happening. I know I said yesterday that AMD needs to do some discounting on notebooks to gain entry into new customers to break Intel's stronghold in the notebook segment but this sounds like they are going to start hurting themselves.

I repeat, if AMD was not running tight on capacity then it's ok to do these kinds of deals to keep the factories loaded. But considering the reports that they are starving teh channel on desktop parts for the last few months and now the TW ODMs are saying AMD may be short of mobile parts, surely they could have made some of these a higher bin and sold them for better margins at some of the other customers they are gaining entry into. Dell has no strategy and is heading into a death spiral of becoming commoditized but it's tragic they are dragging AMD down. As much as I think Intel is going to gain the momentum for the next 6-9 months, I think AMD is now throwing away the strategic leverage they have built so successfully in the market place with a good range of customers through these deals with Dell.

Dell's new AMD based notebooks are not sub 500$. In fact, a quick spec comparision shows they may actually be more expensive than an equivalent Centrino Duo. We probably need to wait 1-2 quarters to really see how this plays out.

Wednesday, October 25, 2006

This is kind of funny

AMD which has just acquired ATI is promoting Crossfire systems with 3 out of 4 being Core 2 systems as best in class for gaming. I screen grabbed them before they get removed...

What makes this really funny is this is not on the ATI site but on the AMD site:

I wonder how quickly this comes down? Someone is getting a flamer in their e-mail when they get into work tomorrow!

AMD Earnings - a quick note

I want to move past the earnings announcements quickly cos they're stale news and I've taken too long to get to this. Hence, just a quick note on AMD:

1. Overall, their quarter came in on track more or less as I'd predicted including the fact they'd have a better quarter of it than Intel financially. The market share discussion also sees some light with the following assessment from Mercury Research - that both gained share from Via but Intel gained 3 points of share while AMD gained 1 point. The key here is AMD's leaps in market share are abating.
Q3 06 Market Share

2. The inventory issue (up by 15%) is worrying and my assessment is that this build up is really a result of Dell not being able to sell everything that was built for them...or just having the wrong SKUs.

3. Margins took a substantial beating down ~5.5%. A few things happened here. First, AMD's growth in servers slowed down relative to the pace they've been managing past few quarters due to Woodcrest. Those margins were allowing them to sell client parts (desktop specifically) at a large discount to gain share. Second, Intel competitive pricing really hit them and they had to take big price drops in the desktop segment which is where they have strength after server. Third, they are chasing low margin deals like Dell to secure entry into new customers like Dell and the PRC OEMs.

4. Unit volume growth was high but overall market share gain was just 1%. Intel took 3% - all of it from Via. I'd also predicted that they would do everything to keep their factories full and it looks like they did.

5. They are clearly short-changing the channel on supply and price competitiveness and this is a chink in their armour that will hurt them over the next few quarters.

Looking forward, AMD didn't provide much in the way of guidance. My thoughts:

- It is crucial for them to win back Opeteron share where they are losing to Woodcrest. I suspect they think Dell will help them do that but you cannot have Woodcrest grow to 40% of the DP market by unit and assume it's all the low end of the market from a system pricing POV.

- They should hold desktop pricing even if it means losing share and hope pricing stabilizes as Intel & AMD have said it might.

- Mobile - they should be willing to drop price in this segment to gain entry into new customers before Intel launches Santa Rosa. Frankly, even though AMD claims a 50% sequantial growth in mobile QoQ, considering the small base they have this is probably not as impressive as it sounds when you think the mobile market is growing at 20-30%. If they hope to dent Intel's stranglehold on this high margin segment they must be willing to make some trade offs.

Overall, looking into Q4 I think AMD still has it's job cut out. They will reap the benefits on cost and hence margins moving to 65nm but will be negated by their need to sustain market share. I would not be surprised if Intel extended it's Oct 22 price drop beyond low end desktop SKUs if required to keep AMD on the defensive. They need to gain market share because adjusting inventory to customer needs is easier said than done so that optimization they talk about may or may not happen. The incremental 60 million worth inventory accumulated this qtr if they've built the wrong product is going to either have to be sold or written off. Either way, it's going to hurt. Operating cash is important because they now have an ATI acquisition to pay debt on. AMD has a dilemma pulling them in two opposite directions. I suspect in Q4 they will actually cede share to hold pricing and margins. While everyone is focussed on AMD starting 65nm shipments, Intel too is increasing their 65nm and reducing 90nm every day so the battle for cost efficiency is tough...specially since the Core products have smaller die sizes.

With nothing left of Via, next quarter will truly tell who is gaining share and who is losing it. I still predict AMD will lose share and Intel will gain it. Remember, 3% of the remaining market is more than 1% in absolute volume terms. Momentum is swinging back to Intel and Q4 will show us that.

Monday, October 23, 2006

Comparision points

Folks - I'm in the process of my analysis on the Q3 earnings but stopped to make a point on how everyone is using YOY (year on year) or QOQ (qtr on qtr) results selectively. They both serve different purposes and with some astute (non-biased) interpretation can be used together to give you a good read. However, don't ignore the changes in the marketplace:

1. AMD will start using 65nm which will give them cost and capacity boosts.
2. Core 2 has smaller die sizes than Netburst...and even some of AMD's line up.
3. Intel has a brand new top-to-bottom product line that kicks ass. AMD does not have a response till mid 2007.
4. AMD has a huge new customer - Dell. But Dell is losing share and more importantly their strategic direction.
5. Intel also has a new customer - Apple. Who is growing their own PC client columes at a fast clip. But is probably getting mobile parts significantly cheaper than anyone else from Intel.
6. AMD has a new strategic acquisition - ATI. But it is unlikely we will see a corporate platform from them in 2007. But they will now have the ability to make life very difficult for Intel in the short term on the integrated graphics business through bundling and pricing. Also, ATI has a strong brand...I'd venture to say perhaps even stronger than AMD in the high end consumer space.

Bottom-line, there isn't a deciding factor to who wins. Some well rounded analysis will engender some good discussion. A single data point (i.e. gross margin) doesn't mean victory for one side or the other (in this case I mean the pro Intel/AMD folks).

I'll be back shortly with my look at the Intel earnings.

Sunday, October 22, 2006

Intel Q3 06 earnings analysis

Been busy this weekend and just able to grab a little time to listen to the earnings properly:

1. Server revenue, double digit unit growth and ASP growth - this is a very healthy sign. As I had said earlier, Intel is starting to win back their big losses in servers...specially in the DP space. Combine that with the fact that Woodcrest is already 40% of the server market by volume in 3 months (as announced at IDF first). However, the impact of this may be felt less to AMD if they decide to retain premium pricing on Opteron and really focus on the MP server market where margins are higher.

2. Mobile too had record shipments - at the cost of desktops which continue do decline as a share of overall market. Not unexpected as Intel does have a significant lead over AMD in mobile. Will be interesting to see the impact of Dell in this space in Q4. But with Merom ramping incredibly fast considering it would be the bulk of the volume in the Core 2 6 million units shipped, feels like they're in good shape here.

3. Inventory in microprocessors down QoQ. Chipsets and flash were up. Overall inventory was ~4.45 billion...a gain of 120 million over Q2. They also took a 100 million $ write off. But most importantly, all the WIP is 65nm. Which means the transition is happening quite rapidly.

4. Q4 outlook - revenue between 9.1 to 9.7 billion. Gross margin around 50%. On track to hit 95,000 heads from 102,500. About 500 million savings on capital spending and R&D against the original plan. MG&A costs to be about flat QoQ even as revenue increases. Overall, it looks like the effects of the re-structure are kicking in to the upside. The worrying thing here is the gross margin staying at 50%. Which means either the price war will continue or they will get hit with the 65nm and 45nm transition costs. Since the indication from Bryant is they expect to see prices firm n Q4, this is probably the former.

On the face of it, the qtr came through pretty much as I expected. Otellini believes they gained overall share but as I said earlier, we'll have to wait for Gartner/IDC to confirm. The most critical piece in here is servers and the Woodcrest ramp. The more share they re-gain here, the harder they hit AMD's margins and hence free cash which is very important as AMD takes incremental debt to fund the ATI acquisition. The price war should stabilize in Q4. Obviously Intel had planned for this when they forecast their margin at 49%. Overall, it feels like Intel is holding in mobile, winning back in servers and losing in desktop. While it's important to win back the desktop market just because of the sheer size, I think we will see the true impact of the price drops and the Core 2 introduction in Q4 due to the lack of lower cost motherboards.

My nett take away is the qtr went as planned. Woodcrest is the bright spot and some marginal upside in terms of revenue but nothing to write home about. A concern on margins for Q4 and the discussion on share still up in the air as Otellini claims they gained overall share and it isn't clear from a quick glance at AMD's call whether they believe they gained any. However, I'll be reviewing that in detail next and will see if we can call it. For now, Intel needs to stay the course and focus on ramping Core 2 desktop, get the right chipsets/boards into the channels and help their OEM customers get off to a quick start as they introduce products this quarter for Christmas.

I'll be reviewing AMD's results next and will be able to figure out what I think Q4 will look like based on that.

Thursday, October 19, 2006

Come back on the weekend

I'm still kind of tied up so don't have time to do an in depth analysis on Intel's earnings right now. A couple of things that caught my attention:

1. They exceeded targets slightly which was kind of in line with my overall prediction that they would be on track to hit their target. They exceeded the mid point by 100 mln $ which is ok. But the bigger take away is Intel is focussed on executing again and we will begin seeing mometum return to them in Q4.

2. Market share - Otellini is now reserving market share comments till folks like Gartner/IDC confirm in 2-3 months. I guess he learned his lesson from the Q1 fiasco not to trust his sales guys on this number. He did however say he believed they gained market share in DP server (which is the volume) with Wodcrest. Let's see if Hector provides an indication or we'll have to wait some more for this data.

3. Q4 gross margins - this was the most disappointing piece that margins would remain around 50%. This either means the price war will continue or incremental costs in the factory...possibly due to the 45nm costs kicking in. There was some discussion on this during the analysts call but I didn't have time to hear it completely.

Come back on the weekend. I'll be reviewing Intel and AMD's results in some more detail. Meanwhile, I've had to help Sharikou by correcting some basic flaws in his calculations on capacity and cash flows.

My comment on capacity can be found far down here:

My comment on cash flows will show up here if the post is authorized. In all fairness, I think only one of my posts was not put up so I don't want to make it appear like all my comments are being filtered:

Hopefully, see ya on the weekend.

Saturday, October 14, 2006

A few days of silence

I'm going to be away and kind of busy for a few days. May not get to post but will definitely make time to come back and look at Intel's Q3 results on the 17th. I will however check in and ensure comments get through. Till then, remember my prediction:

Intel will regain market share and momentum (share + margins) in Q4. If you wanted my advice, I would have told you to buy Intel at 17$. Now, buy AMD when it goes below 22 and hold till they re-gain traction. Remember - I'm not qualified to give you this kind of advice and you are not expected to take it. But's the Internet and heaven knows what other kooky things you may have been learning on it.

Friday, October 13, 2006

AMD + ATI to cut 2000

The combined AMD/ATI will cut 2000 jobs:

While it's sad that even two companies who seem to be on a roll will hack of 15% of their combined workforce, I think this is a smart move. It is better to remove the excess now when they can afford it. However, I wonder how the 800 AMD employees who are going to be laid off must be feeling. Undoubtedly some of them will feel they have given their blood+sweat+tears to bring AMD so far and will feel betrayed to be dropped like an old shoe. Alas, such is life.

This rumour from the Inquirer was false. The rumours have died. I've come back to update this because there are some folks who read this blog and take every comment rather personally. They've been rather insistent so I thought I'd give in. Having said that, anyone who can mis-read this post as a prediction of doom for AMD needs to get out for a bit. I mean how many ways can you mis-interpret a post where I say this is a smart move. Anyways...for some strange reason I think I'll actually be able to get on with my life even after this -:)

Thursday, October 12, 2006

Dell sucking AMD's capacity (& life) dry

In spite of dialling down the cache from 1MB to 512kb and removing some SKUs it appears AMD is running into a capacity shortage thanks to Dell having first right of refusal on supply:

I was beginning to think they had avoided this pitfall but it appears not (scroll down the comments here).

The implications of this are two fold:

1. Dell probably buys on shorter cycles than most other customers to keep inventory low. However, due to their size AMD and Intel probably have to keep a buffer aside for Dell in order to meet their contractual obligations. What this means is if Dell is not moving their SKUs, they still have to hold the inventory for some time thereby starving other customers when capacity is constrained.

2. The fall out of #1 above in this case for AMD is that distribution and unbranded channel without stock will be ticked off that they are losing sales to someone else and begin to put their weight behind someone who can guarantee supply. In this case Intel. The key issue is their "faith" in the supplier is lost. This is exactly why Intel lost significant market share when they had a chipset shortage. And now AMD is going to lose the trust of the channel and they will put their sales push behind Pentium & Core 2 where availability is less of an issue. In addition, they will be further ticked because Dell will be under-cutting them so now AMD is not only starving them of supply but helping the big OEM eat their breakfast.

As the shortage escalates, this becomes a proportionately bigger and longer term issue for AMD. Think about it - the small unbranded DIY guy sitting in his store, customer walks in and asks for PC - what's he going to do...push AMD when he doesn't have stock or push Intel.

The INQ article links to this post on

Which links to this apology to customers from Mesh Computers in the UK. As you can see, they don't appreciate being on the back foot and willing to push Intel instead:

So I had a look at the Mesh web site to see whether they had indeed increased their Intel push. The answer is yes - only 6 out of 30 desktop SKUs on offer are AMD...everything else Intel:
Mesh Computers All Desktops

So it appears winning Dell may not only be too late, it may be at an awkard time. It would have been better to win Dell once their 65nm was ramped and reducing any capacity issues. Even 2 quarters of shortage will be a problem as channel momentum will swing Intel's way and re-gaining that momentum across hundreds of thousands of channel players across the world is a BIG task that takes time.

If this capacity shortage is true, it is potentially a big issue for AMD. Specially if Dell is squeezing them on margins and then dropping systems at super low prices as it appears they are. It's a double edged sword with just one head to cut.

I repeat, AMD will lose market share in Q4 if not earlier. Momentum will swing back toward Intel with market share gain from Q4 as well as margins improving from the projected 49% in Q3.

Thursday, October 05, 2006

Intel to buy Nvidia

Speculation that Intel will announce acquisition of Nvidia today:

Intel to take over Nvidia

My own instinct is that an acquisition is probably not the best solution if all they're after is technology. A stake in Nvidia or even a JV or a MOU type arrangement to co-develop certain technologies are better paths to gaining advantage of Nvidia's technical capabilities. However, from a business standpoint having Nvidia's comprehensive product line up and brand will be a good counter to how AMD may try to leverage the huge strength of the ATI brand. Whatever it is...any kind of alliance between Intel and Nvidia is BIG!

The weekend is here and Intel has still not bought it's bagful of (graphic) chips. I think this deal is not a deal. But something is in the works between the two. Collaboration is inevitable. The enemy of my enemy is my friend. Neither Intel nor Nvidia will want AMD/ATI to strengthen because they are now going to feed each other. Nvidia also does not want Intel to strengthen because it is also a competitor...though the lesser of the two evils. However, with Intel's intention to get into discrete graphics, they are heading for a collision. What choices does Nvidia have - become an end to end CPU+GPU company. Easier said than done. Or find a partnership with someone else who can help them get there. As I said in a post earlier, Nvidia and Intel will get closer. I'm sure something will happen by the end of the year.

Wednesday, October 04, 2006

The battery (non) issue

I had a few comments asking for a post on this issue of "batteries are exploding because of Intel CPUs" theory Sharikou has propogated. Here are my thoughts:

1. Do you seriously believe Sony has not closely investigated the issue to analyse root cause and would replace millions of $s of batteries thereby hammering what looked like a reasonable financial year after a long time if they could pass the blame to someone else? Do you think Sony is subservient to Dell, HP, Apple that they would take a 400+ (and counting) million $ hit. Sony is not dependant on these companies to survive unlike AMD, Intel and Microsoft. If they could save the money and more importantly their reputation for manufacturing excellence which affects their brand and hence other parts of their business, we would see a court case of humungous proportions.

2. If the issue were the thermals on Centrino and not a manufacturing glitch in the batteries, how would a battery re-call help? The risk of explosions persists by the same formula and the OEMs are waiting for the biggest consumer class action law suit ever to happen. I think not!

3. Sharikou believes he can pull off a cheap magic trick by simply saying because all batteries must be turned on to explode and all laptops have Intel CPUs consuming power...hence 1+1 = 3. Actually, the trick is if he says it often enough, with sufficient vehemence and calls you stupid then it will be true. Bottomline - there is a big fat ZERO impact to Intel from this.

4. Finally, this is a waste of time - mine and everyone else with two ounces of intelligence which is all you folks on this blog. Let's get past it and move on to topics that merit discussion. If I wanted to do a blog on things that lacked intelligence - we'd be discussing world politics.


I think it's time to end this discussion once and for all. All 3 Apple notebook models affected by the re-call are G4's - not Macbook or Macbook Pro's. Hence, Sharikou's argument that the battery explosions are due to Intel CPUs is now officially dead & defunct. My advice to him - "Get over it quickly! Or your blog will lose credibility."

Tuesday, October 03, 2006

HP does Voodoo

Last week HP decided to buy Voodoo PC. Rahul wrote a long blog post on how it all happened and what the future could hold:

While this makes sense if HP's motivation is purely to have a rebuttal or instrument to counter Dell should they get smart and begin to use the Alienware acquisition more strategically. The big question running through my head is the BIG numbers in the gaming segment are in markets like PRC and Korea. PRC will by far be the biggest market in a few years. But the Voodoo model - top of the line, super expensive niche products is not going to help them make traction in PRC. So what changes will they bring to the Voodoo brand and it's business model? Will they take it more downscale and mass market? Does that work - or does it just dilute Voodoo's equity for it's existing premium customer base?

My guess is they will do exactly that. Slot Voodoo as slightly high end brand targetted at gaming but make sure the average system price point becomes much more affordable compared to what Voodoo is today. The second thing they will do is use the brand to extend beyond PC gaming and begin to introduce other devices - not becessarily consoles but consumer electronic devices (i.e. TV's). For the die hard Voodoo fans today, this company and brand will not be the same 3 years from now.

My only other observation is Rahul seems to floating on cloud 9. His two entries on this are absolutely euphoristic. I just hope this isn't fleeting. Once they're part of the big "corporate" HP, many of their ideas and aspirations hopefully will not fall prey to corporate politics. I wish them all the best!

Thursday, September 28, 2006

AMD won Dell 2 years too late - I'm not alone

I have mentioned in several places that I think AMD winning Dell would have had far more significant impact 2 years ago. Today Dell is struggling to find direction, they no longer hold a significant price advantage over their competitors and are still focussing on squeezing every ounce of cost from their supply chain and suppliers and this is exactly what they are using AMD for. To deliver ultra cheap systems. Unfortunately, in the process they are probably hammering AMD's margins. Meanwhile Intel has moved to a uniform pricing on desktop parts for all their customers. What this means is everyone get's the same price...from their distribution channel. So Dell is unable to squeeze Intel and as a result they will suck AMD dry even more. AMD can't say no because they have been waiting to get entry to Dell for donkey's years.

My opinion is borne out by ThinkEquity analyst Eric Ross. Ross of course has access to more information than I do so he's got more facts to substantiate the argument:

Bottom line...Dell is going to be a drag on AMD's margins. AMD going to Dell will be counter-balanced by HP getting more comfy with Intel. You can read more about it at my earlier post:

AMD law suit runs into set back

The judge presiding over AMD's lawsuit just tossed out a chunk of the complaint that pertains to dealings in Europe and Japan:

This is a set back for AMD since their last effort to bring Intel down in Japan resulted in a strongly worded letter and Intel agreeing to modify certain business practises without admitting wrong doing. Ironically, AMD is crying foul on behalf of the Sony business who are 100% Intel and seem to give no indication of even letting AMD in the door.

As I said before, this law suit will stretch for years under the wonderful American judicial system. The only people who will win are the lawyers at AMD and Intel who will pocket some nice fat fees. If AMD slides to a loss as I have predicted, their shareholders will want to know why they are pursuing an expensive lengthy legal battle with Intel 3 years too late when they should be focussed on growing further the market share they have won. And if they lose market share as I am predicting will happen in Q4, their shareholders will be even less happy.

Wednesday, September 27, 2006

An eventful day...?!!

I thought I'd sum up what I thought were the key points Otellini made on day 1 of IDF. To watch the webcast, go to:

1. 5 million Core 2 shipped - this icludes desktop and notebook parts. This should put an end to speculation on yields. Specially the discussion over on Rahul Sood's blog where I commented on Merom notebook availability at launch being higher than usual while desktop being held back due to chipset availability issues:

It should also put an end to Sharikou's conjecture that Intel can't sell 400k Conroes:

2. Quad Core launch - Otellini announced the launch of their quad cores in two phases. November for servers and high end desktops. Q107 it becomes mainstream under the moniker Core 2 Quad. He claimed a 70% SPECINT increase for quad core over the Conroe Extreme version. This don't mean much until we see a series of robust benchmarks across. However, what this means is a 6 month lead over AMD...enough time to stabilise manufacturing and bring this into mainstream availability and pricing in Q1. As far as I'm concerned, in theory K8L should trounce 2 Core 2's integrated in the same package. However, this is not a done until we see K8L which is still months away. Even 4x4 is still to come. The demo from Remedy showing their new game Alan Wake was cool -

3. 45nm - 40 million 65nm processors shipped. But more importantly cross over from 90nm to 65nm completed. 45nm will give a 20% performance increase and a 5x reduction in power leakage. I'll deal with the market implication of this in a later post but let me tell you that it makes Penryn (the 45nm shrink derivative) due in 2H07 very interesting and potentially may give AMD a headache. Otellini showed 3 fabs in development to go online b/w 2H07 and 1H08 at an investment of 9 bln $s. First 45nm processor design to be complete in Q406 and 15 in total in development. 32nm comes in 2008 and he showed again the strategy to have a new m-architecture every 2 years. The biggie here is the 300% increase in performance per watt by 2010.

4. Woodcrest - 1 million Woodies shipped in 3 month. Woody is now 40% of the DP server market and over 50% of Intel's DP shipments. In addition, Rackable CEO gets up on stage and displays a mid sized rack that would put a 40 CPU Intel Quad core cluster in the top couple of hundred super computers and claims he has a bigger rack that would catapult into the top 80.

Sharikou has frequently complained that Woodcrest is nowhere to be seen. Now we know why - because customers are buying them before they hit the shelves -:) (do I need to put the cheeky monkey pic here too?)

5. Teraflop on a chip - Otellini displays a processor w/ 80 micro-cores transferring data to SRAM at over 1 teraflop. Claims technology will be available in 5 years. Speculation is this is the secret sauce for Gesher.

6. Wimax - Anand Chandrasekhar brought a UMPC w/ Wimax which was connnected to a new Volkswagen being developed. What was really cool was the UMPC wirelessly ran 2 video streams at the same time to 2 screens at the back of the car. Sweet...!

Overall - Otellini had some interesting things to show but the only thing close to a rabbit was the teraflop chip. Nett take away:

a) Intel's execution engine seems to be back on track somewhat. Just delivering what they committed is a good thing.

b) The Conroe issue for desktop is definitely not yields - as I said before, it's a chipset issue. 5 million Core 2's on desktop/notebook and 1 million Woodcrest is a good ramp. My prediction stands - Q3 will be better for AMD than Intel though not great for both. Momentum will swing back toward Intel in Q4 with them re-gaining market share. AMD will swing to a GAAP loss by Q207 once the ATI deal goes through.

c) Ultra mobile PC with Wimax has the potential to be a killer app if Intel can drive the system price down to 500$ as they are trying. Wimax is going to be big...and it will be big for Intel. AMD cannot catch them here.

d) Kentsfield will not be just a "we got there first" product as I've been thinking. By Q107 as yields stabilise this is going to kick some serious ass. With the 45nm Penryn derivative in 2H07 it may not be "Game. Set. Match. - AMD" as per current expectations. If K8L is priced in the high end and Kentsfield is lower priced the performance and thermals may not be that disastrous and may provide better value for money. Either ways, Intel has a 6+ month lead to market quad core to end users and position themselves as the leader.

Overall, solid progress though one was hoping to see more innovation. Teraflop on chip and Wimax are the two big things that have the ability to drive a big shift in the tech landscape. And the final thing that will change the tech landscape is Apple who were on stage too. These guys are on fire - HP & Dell look out. Read my post below for the full analysis.

Tuesday, September 26, 2006

Silence is boring

Things have been fairly busy last few days. I'm also waiting to see what Otellini says today on day 1 of the Intel Developer Forum before my next post. I'm going to be pretty disappointed if he doesn't say something new - or show us something we haven't seen/heard of before. For the first time in a long time - strangely (& sadly) AMD has not made an attempt to upstage IDF with a big revelation of their own. I was hoping 4x4 would arrive with fanfare...

Friday, September 22, 2006

AMD - two faces...or just two faced

I was thinking about the entire Dell pricing thing I stirred up below but have got side-tracked. I cannot resist this chance to have a dig at my good friend Sharikou.

September 12 - Sharikou posts this extolling AMD's new site and how innovative their marketing is:

You can see the AMD site here:

Now look at this report that AMD has hired shillers to go around the web trying to promote this site anonymously...and in the process have got caught big time:

So Sharikou holds AMD and Hector up as the guys with the conscience, the fellows saving us from Intel. Hell, Hector does it too and is taking Intel to court for their unethical business practises, slamming them for screwing up the world. Now...I'm pretty sure Intel ain't as white as milk. But if you're going to hold yourself up as the voice of the people, then do that. Don't be two faced and violate their trust if you think you can get away with it. Whatever my personal opinions on how this battle is going to play out (you can see them in my previous posts - and there is no hands down winner), I have a tremendous respect for how AMD has turned itself around. That respect just took a deep dive.

Hector should fire Henri Richard who looks after marketing and apologise publicly.

I'm still waiting to see how Sharikou spins this into a an argument that AMD is made of fairy dust. Or he'll just stay quiet when it's outside the scope of his rhetoric.

Thursday, September 21, 2006

Power of sensationalism - learning from the master

Folks - my post below about AMD giving away their processors was a bit of sensationalism ignoring some variables so I could make a dramatic statement. Sounds like someone we all know and love? I admit it - I was feeling lonely and wanted someone to argue with. For further debate and to really understand the insight of that post, see my comments in the post.

I am disappointed I don't have a rebuttal from the real Sharikou. Who I want to say may or may not be a Ph D. but IMHO understands human psyche and marketing. Thanks for lending me this little attention gathering ploy.

For the rest, don't believe everything you read on the Internet...

Wednesday, September 20, 2006

Is AMD giving Dell their processors for free?

Some people are tom-tomming how cheap the AMD systems are on Dell. I had a look and here's what I found. I configured the Dimension E521 featuring Athlon X2 and the Dimension 520 (featuring C2D) with exactly the same specs and then saw the delta between the two. Before I tell you what I found, here are the specs for your benefit:

Dimension E521:

PROCESSOR AMD Athlon™ 64 X2 Dual-Core 3800+
OPERATING SYSTEM Genuine Windows® XP Media Center Edition 2005
MEMORY 1GB Dual Channel DDR2 SDRAM at 533MHz- 2DIMMs
HARD DRIVE 160GB Serial ATA Hard Drive (7200RPM) w/DataBurst Cache™
MONITORS 17 inch Ultrasharp™ 1707FP Digital Flat Panel
VIDEO CARD 256MB NVIDIA Geforce 7300LE TurboCache
SOUND CARD Integrated 7.1 Channel Audio

Dimension E520:

PROCESSOR Intel® Core™2 Duo Processor E6300 (1.86GHz, 1066 FSB)
OPERATING SYSTEM Genuine Windows® XP Media Center 2005 Edition
MEMORY 1GB Dual Channel DDR2 SDRAM at 533MHz- 2DIMMs
HARD DRIVE 160GB Serial ATA Hard Drive (7200RPM) w/DataBurst Cache™
MONITORS 17 inch Ultrasharp™ 1707FP Digital Flat Panel
VIDEO CARD 256MB nVidia Geforce 7300LE TurboCache
SOUND CARD Integrated 7.1 Channel Audio

Now here's the price:

E521 w/ Athlon X2 3800+ = $889
E520 w/ Core 2 Duo 6300 = $1139

The delta is 250$.

Now we all know that Intel's desktop pricing is uniform which means Dell gets the same price as everyone else...the price on the price list. Which for the E6300 is $183. Which means Dell is probably paying AMD just 67$ for this part since everything else is equal. A search on Newegg shows the 3800+ parts are priced from $154 - $178. Even with maximum latitude taking the $154 price point, AMD is giving Dell a whopping $87 discount. At 67 bucks, this is just incredibly low margin and going to severely hurt them.

I made a comment earlier in another post that had AMD won Dell 18 months earlier, this would have been far more beneficial to them than it is now...specially as Dell is struggling to find direction and even compete on costs. I also said Dell would be screwing AMD on pricing and using them at the low end to drive volume. I now see how desperate AMD was to win Dell. At these prices the cost of keeping the business and potentially having to save parts to meet Dell's needs is just plain dumb. I'm now less convinced that AMD's quarter will be as good as I thought. They are gaining market share through Dell but at a severe hit to margins. In fact, it's almost to Intel's interest that Dell win low end share w/ this product and hope that HP and other's continue to take the higher end of the market with Core 2. If AMD continues to give their processors at this price to Dell - which it seems they need to keep the business, they are heading south pretty rapidly.

After I was done posting this, I saw this article on Dell potentially pre-announcing yet another poor quarter:

Dell is sinking and they are going to take AMD down with them. AMD cannot refuse Dell anything because they have just got into bed with them and that includes the rock bottom pricing Dell wants. But this is not going to be enough to save Dell. Read my earlier posts for my thoughts on Dell...and how HP and Apple will be eating their lunch.
I posted this in the comments but it appears it isn't getting read so I'm putting it here in the post

Ok - while you guys were all within your rights to slang me for this piece of shammery - only one of you really caught on the calculation was flawed to begin with.

The grand prize goes to Anonymous - who by virtue of being anonymous cannot collect.

Yes...yes - if I really had to extrapolate, AMD is paying Dell to buy their CPUs which would be perhaps one of the most ridiculous things anyone could possibly evey say. Simple math will show you:

C2D system cost: $1139
C2D 6300 CPU cost: $183
Bill of materials + margin = $956

This is more than the entire Athlon X2 cost guessed it = $67.

The real point here is some of you think I'm just pro Intel (or even Apple) and immediately get defensive (see the comments). That's not what this blog is about. I'm trying to call how things are going to play out using reason, some analysis, my intelligence and of course making some assumptions because I don't have all the info.

I apologise if I wasted your time but if you have a sense of humour hopefully you'll enjoy the laugh.

I'm still working on how to interpret the system pricing and I'll post that in the next couple of days. A lot of the feedback in the comments is going to be useful in trying get there so thanks.

Also - pls see my post above this one.


Monday, September 18, 2006

The Apple effect

It's been a few days since my last post. Things have been a bit hectic - yes, yes...I really do have a job. I'm going to deviate a bit from this incessant wrangling on whether AMD or Intel will secure world domination first. Instead, I'm going to take a look at where Apple is heading, it's impact on Intel and more importantly how it changes the landscape for companies like Dell, HP & even Microsoft.

Clearly, Apple is on a path to become the Sony of the Digital World. The key difference is Sony could never string together their different businesses to feed one another and Apple is making that their operating model. Let's examine the pieces Apple has:

1. Hardware - while the iPod is their claim to fame, they have used this small device to open the doors to Apple computers again. That coupled w/ their adoption of Intel allowing Windows to operate on their systems is a powerful way to gain trial of Apple's hardware and more importantly software (inc OS). When Apple ran the Switch campaign couple of years ago, they didn't have the substance but I have to say now they do. With designs like the Mac Mini and the new set top box, Apple is beginning to address the convergence of PC & CE.

2. Software - undoubtedly Apple's OS and software are miles ahead compared to the Window's franchise...specially in terms of realiability and usability. And now with the ability to run Windows they are a phenomenal solution for consumers.

3. Content services - with iTunes and Jobs' ability to negotiate with Hollywood and the music industry, Apple will soon become the largest distributor/re-seller/retailer of content in the world. It's just a matter of time.

When you start to string these pieces together, what you get is a picture of the digital home - h/w, s/w and content along with peripherals through the iPod brand. While Rahul Sood in his blog obliquely refers to how Michael Dell didn't understand Apple's strategy with the iPod but didn't clarify, I'm going to lay out what I believe it is even though Steve and I are not on first name terms.

Apple's strategy is exactly the same as Gillette's razor/blade strategy. Their long term goal is to get a razor into every house so that they can make a ton of money on the constant replacement of blades. This is also HP's strategy for their printer and cartridges. It is every mobile phone operators strategy around the world where they subsidise hardware to earn recurring revenue on service.

The key question here is once my brand enters your existence, how do I continue to monetize that relationship. And for Apple "it's not the hardware stoopid - it's the content". Apple's goal is to become the largest distributor of digital content in the world. They will become the Walmart of digital music & movies & perhaps even games over time. As Apple's user base grows, Steve's ability to command pricing and content will grow. The key difference between Apple and Walmart will be that content unlike household groceries cannot be commodotized because every piece of content is unique.

The path to this is to make the Apple hardware ubiquitous. Which means expect more and more devices of every kind to serve every need over time. From PC's, to set top boxes and at some point even ultra-mobile PCs. If it's a way to experience connected content, Apple hardware will get there.

The impact of this on Dell and HP and every other hardware supplier is that they now risk getting further commoditized and as a result marginalized in the mind of the consumer. The hardware becomes a little more (not completely) irrelevant since all you really want anyways is the content. When was the last time you worried about what the configuration of your set top box was? The one chance the OEM boys do have is if people want to take that connected content and experience or manipulate it offline. Because to do that you need hardware capabilities. However, many non techie consumers will probably be happy to experience the content on demand and be able to transfer it to a device easily.

So if Michael Dell didn't get it, I hope he does now. As for Microsoft, boy oh boy are they in trouble yet again. If Apple owns the content experience and the hardware to deliver it, they have the opportunity to own everything behind it over time including...all the other software. Of course, Google knocking on the other side giving away free software for ad space isn't helping.

So ladies and gentlemen - kiss your stock price good bye to any technology player who doesn't have a long term strategy to earn revenue from service. And this includes AMD and Intel. Having said that, in this world of connected content, Intel has a key piece of their strategy called Wimax. And this is an opportunity for them to earn service revenue. Because people care about the brands they carry and starting Q107 the Centrino brand has a Wimax product. I'm hypothesizing but we could see a replication or version of the cellphone model where Intel works with service providers to take a share of revenue to enable their service directly onto the hardware...or variations thereof.

So for the dudes stuck on the "my micro-processor is better than your's" argument, welcome to a place where hardware is a commodity, content & services are king and Apple defines the future of the consumer technology industry. And will they dump Intel. Nope - not any time soon = the next 10 years. Because Intel is bending so far backward for Apple they can kiss their own ass. And Steve has an ego...and that ego means he doesn't give a damn if AMD offers him cheaper prices like Dell does. Because Intel probably has a thousand engineers helping him customize their products for his super cool machines.

(P.S. - I made a few comments bold so that the folks who don't get it hopefully will find it easier to see the big picture I'm talking about. I'm hoping to keep this discussion strategic)

Thursday, September 14, 2006

Intel announces dividend

Intel just announced their regular dividend of 10 cents a share payable Dec 1, 2006:

With almost 5.8 billion shares outstanding that's around 580 million $. Now why would the board announce a regular dividend of this size if they were expecting to get hit in the gut on profits in 2H? Why not conserve cash if they are bleeding. To me, this is an indicator that things may not be as bad as we financially suspect. 800 million $ is still a lot of money and the way I read this, Andy Bryant is not expecting a loss - GAAP or otherwise in 2H. Otherwise it is unlikely he would hand 600 million $ back to shareholders if the company was heading to red.

Tuesday, September 12, 2006

Intel sells optical communications

I did want to say I told you so. Intel just sold their Optical Networking business to Cortina. Yet another piece of garbage bought by Barrett. I believe Intel will continue to look at businesses they can hive off. IMHO the flash and motherboard businesses should be prime candidates. Or at the least hand the flash business over to the Micron JV and get out of low end motherboards.

Link to press release

Monday, September 11, 2006

Deja Vu - 2002 all over again?

I found this old article from 2002 on "" and it got me thinking:

AMD Sees Likely Loss of Market Share

Is it 2002 all over again. Here we are in the middle of an intense price war initiated by Intel. AMD's next generation is 9 months away. AMD's market share is around the same level as it is today - perhaps a delta of 200 basis points. AMD has profitability but we've already seen them scale back Q2 and Q3 is not looking hot. Now, with the added debt of borrowing to buy ATI, I think it's a matter of time before they recede into the red again. There are two major variables that are different from last time that I can see:

1. AMD now has entry into the high margin server business and is getting a toehold into mobile. This should buffer ASPs.
2. Intel has a kick ass new product line that gives AMD a run for it's money on almost every front except perhaps MP.

So the question is will history repeat itself. Will AMD lose market share and slip back into a loss. Here's my prediction:

- Q3 will be a mess for both Intel and AMD. AMD will begin to lose ASP and market share. Intel will have a bad quarter because they have driven the floor of Pentiums down into the ground while Conroe is still not going to have enough supply or impact to balance this. They'll both be lucky if the hit their Q3 projections. However, AMD will have a relatively better Q3 than Intel compared to their forecast because even as the impact of the July 27 price cuts start to change the market share dynamics, it takes time for such swings to happen.

- Q4 will be better for Intel as Conroe/Merom/Woodcrest help them regain market share (though reports show they are already gaining back in places like US retail and as much as the AMD fans may knock Woodcrest availability, DP server deals are starting to be won). The server stuff will help ASPs. Merom is coming in at the same price points as Yonah so no ASP relief there and Conroe will help a bit. More importantly is the cost savings of moving over to Conroe simply because the die size is smaller. For the disbelievers - here's a handy comparision on Tom's Hardware. In fact, I wouldn't bet against Intel dropping prices and bringing Conroe close to mainstream pricing in Q4 as yields stabilise or at the least introducing a SKU below the 6300. AMD will be in a better position to fight price drops with 65nm production. However, until K8L arrives, AMD is in a difficult position strategically. How low do they go on X2 pricing as they get sandwiched between PDP and Conroe? If they start to lose money, do they give up market share to salvage ASPs or vice versa. My guess is they will do what they can to keep the factories filled to maximise margins and profit in order to generat cash. With the incremental debt to purchase ATI, the more cash they generate the better it is for them. It's kind of funny - AMD is now behaving like the incumbent and Intel like the challenger.

Of course, all this makes the assumption that K8L will blow away Conroe but until we see product nobody knows for sure. I'm in the camp that this will happen but not across every application and benchmark. Then Penryn comes in 2H07 and I'm thinking that Intel may be faster to 45nm than what is their public position. They have been focussing on execution and so far have managed to pull in almost every major product launch by 1 quarter in the last 6 months. For now, my observation continues to be that the microprocessor market is evolving and becoming like the US car market. Highly segmented and different products will excel at different applications. The day of one processor to rule them all is over.

Friday, September 08, 2006

The many paths to failure for Intel - Part 1

Since this topic came to mind after Intel's wimpy re-structure announcement, I thought I would deal with the things I think they should have done. Also, the first comment to come in from "Anonymous" is about their flash business being spun off, it seems like this is a good place to start.

There are 3 things top of mind:

1. Spin off or sell their flash business. Eventually, while flash holds great promise as a replacement for hard disks in the future, it is essentially a lower value add and hence lower margin business = commodity. While revenues in the Flash group are ~2.3 billion in 2005, they still lost 154 million. There are only two reasons I can think of that Intel has not spun off the flash biz. First, Apple has startd buying Nand from the Micron JV between Intel & STM. Since Intel seems to be investing so much into the Apple relationship, they may be keeping the flash business and hence control to ensure Steve doesn't get pissed with them. The second reason is the role of flash in the future of the PC...namely Robson technology. Both these are really not good enough reasons to retain the flash business which is dragging down profits. While 154 million is not large in the scheme of Intel's profits last year, it is this consistent annual drain on their overall profits that does start to add up...450 million from 2003-2005. There are other issues like not allowing them to stay focussed on microprocessors, lowering their return on capital and other investments, etc. All in all, I do agree with "Anonymous" who triggered this with his comment that the divestiture of this biz is coming. Probably the reason it was not announced this week is the deal is not sealed yet. I would expect this to happen w/in the next 6 months.

2. Divest the motherboard business. Intel's board business was a strategic initiative primarily to help drive the industry forward faster than the industry would move. Think of it as a "kick in the ass" to get things moving. 15 years ago this made eminent sense. But today, with a highly developed industry and their boards while recognised for stability aren't at the cutting edge of design, I really question the need to continue this business. At the very least they need to trim this business back and stop making lower end boards with lower end margins. Overall, my thought remainse, sell this baby or at least take it outside Intel so it isn't cushioned and becomes agressive and innovative. If you need to have a strategic foot in, invest in a real motherboard company and influence the industry through that.

3. The last thing I wanted to cover was communications. It's not clear to me how much garbage is still left after the Marvell/Eicon sales as well as the 600 million $ write off last year. My only comment is dump it unless it's Wi-fi or Wimax. Anything else do outside or partner. Intel is crap at growing new businesses.

The only thing I thought about and then re-considered was the graphics side of the house. In spite of the fact they're crap, Intel has no choice but to build this capability and build it well now that AMD has ATI. Even a partnership with Nvidia is not sufficient. They need to own all the principal pieces of the platform and graphics is a big one.

I think all this would have probably taken another 10k employees out of the company and increased profitability further. A good thing even at the cost of shrinking revenues. Of course, some serious axe to at their senior management structure would probably remove a small number of employees but provide yet another significant bump to profitability and hopefully their strategic and executional abilities.

Thursday, September 07, 2006

The many paths to failure for Intel - approach

I was not happy with Intel's efficiency re-structure outcome and you can see that in my posts. In my next topic I am planning to contemplate how many ways Intel can fail.

Coming soon...


As I started to think about what I wanted to do here, I figured this is such a large topic that I don't have the complete expertise for this (specially on the technical side) so I'm going to try and make it collaborative and iterative. I'm going to kick it off (above - or else this is going to get crowded) but elevate certain comments that have strategic insight for further discussion right into the post itself. Think of it as an evolving user driven post.

Sharikou - looking forward to your input. Please surprise me by not continuing themes like "it takes 20k Conroes to feed 10k workers" and "Dell's battery woes are Intel's fault" which don't qualify as strategic. You definitely have a certain level of knowledge to dissect this topic well so I'm hoping for some great insights from you.

ATI revises quarterly guidance down - impact to AMD

ATI announced after market close that their qtr revenue would be down by over 100 million $ to 520 million. They blame Intel yanking their chipset business faster than anticipated (what were they expecting - Intel to continue to put cash in the pocket of their competitor) and a "supply chain adjustment" by a major handheld customer. That's some phenomenal spin - a big cancelled order is now a "supply chain adjustment".

But I'm not here to pound ATI. Naturally their stock price is down post market close. However, AMD is down 3% post market having dropped 6.45% during market. Now it was a bad day for tech but this is going to raise questions on Wall Street and with shareholders on the financial wisdom of the deal. There is a chance that from a revenue & profit standpoint ATI may not be bringing the same level of upside in 2007/2008 as AMD projected. In addition AMD is locked in at 22$ price per share for ATI having used the low price of 18.26$ per share for their own conversion. The possible implication of this may be to put more pressure on their credit rating and the terms of the 2.5 bln $ debt they are taking on.

If you look at my earlier post on what uncertainties could hinder AMD on this acquisition, these are the kind of unforseen issues I was referring to. I'm not claiming I knew this specific hitch was coming but you understand now what I was talking about.

Frankly I think this deal is a mixed bag for AMD:

1. They will benefit from having more marketing and sales bundling bullets in their arsenal.

2. They will also be able to make some headway on platforms but mostly on the enterprise side. Consumer and SME is doubtful with their limited ability to build a large brand for these segments. You can see my comments on this here by scrolling down the comments.

3. Their ability to integrate high quality graphics (well better than Intel's sad IGP) and CPU on the die will help penetrate emerging markets as it should enable lower cost. Though I have to believe there are substantial design and manufacturing challenges to this I have a higher confidence in AMD than Intel here. But this will probably not come to light before 2008.

4. The acquisition will divert resources that were focussed on sustaining momentum against Intel. People in many places inside AMD will be forced to stop what they were doing and work through this merger. Heck, Hector and team will be forced to do that.

5. Managing their cash and debt position will be very difficult as long as this price war continues. A couple of bad quarters will make things sticky. Which doesn't mean Intel will have good quarters but remember - a good Q2 for AMD was net income 90 million $ and a bad Q2 for Intel was 800 million $. Going from 90 to 0 is a lot easier than going from 800 to 0.

I don't think AMD had a choice if they wanted to stay competitive in the longer term. Timing of the deal is not perfect but I think they did the right thing biting the bullet now rather than later. Hector and team have shown a high ability to manage the business but the next year is going to be tough. Any mis-step can cost them dearly. Which further tightens their ability to resource the incremental things they need to grow. And I think the first likely serious set back will be market and then revenue share reduction due to the price war + Conroe launches leading to a quarterly GAAP loss in the next 2-3 quarters.

Wednesday, September 06, 2006

A quick look at Intel's re-structuring

Having vented in the post below, I thought I'd quickly sum up what I've gleaned so far about Intel's re-structuring.

Projected savings - 2 billion in 2007 & 3 billion in 2008


1. Workforce reduction of 10,500 - 5,000 already done through sale of businesses, attrition and manager layoff. Another 2,500 principally from marketing and IT this year. Another 2,500 by mid-2007 at which point will extend to manufacturing due to efficiencies gained through changes to process, etc. All these will be a combination of layoffs and attrition.

2. Reduction of merchandising and other expenses. Intel has already reduced the amount of marketing funds they allow customers to accrue under the Intel Inside program from 6% down to 5% earlier this year. Even on a base of 1.5 billion $ for that program, each basis point gives you about 250 million $ back so I would definitely expect them to save a significant chunk in their marketing expenses by scaling back this program.

3. The incremental 1 billion $s in 2008 will come from manufacturing. I guess they've found some serious inefficiencies that will allow better use of infrastructure, materials and manpower over time.

On the severance cost, I was pretty surprised at the number being only 200 million. But here's the rub. First, 5000 people of that 10,500 already gone. Also, they continue to attrit so naturally those folks will not receive severance. Let's assume that's a conservative 1% per qtr which reduces the number even further if you count the 3 quarters from now till mid 2007. Next, it's not clear from their press release whether that 200 million is cost between now and mid 2007 when layoffs finish or strictly within 2006 or 2007 financial year so I'm assuming it's overall. All in all it looks like the severance may be more in the range of 50-100k $ per person vs the 20k it looks like on the surface. Here's an interesting story that Intel employees in Ireland were receiving 8 weeks salary for every year served. I wonder if that's the legislation? Whatever...that's a pretty good handshake.

At the end of it, I still think this was a pretty weak finish to all that big talk about re-focusing the company. I won't repeat myself - just read my other post.

What will Intel cut

It's all over the news...Intel is expected to update on the efficiency exercise in the next couple of days. Joe Osha is predicting Intel will dispense with it's flash business. I'm inclined to believe he's on the right track. I actually think they will follow AMD and spin off their flash business like Spansion. Or sell it to Micron. I also think some of their other non-core businesses like Motherboards may be cut or sold thereby removing thousands of heads from their cost structure while removing loss making or low margin businesses. Probably significant parts of their money losing communications business into which they have poured billions of $s with never a profit will be trimmed. Though I think the wi-fi and Wimax related pieces are too strategically important and will stay.

At the end of the day, it's sad that thousands of people will be in flux or jobless. I hope Intel's board closely scrutinises exactly who's competency is in question that has resulted in the trauma for so many and "reward" them appropriately.

We'll come back and look at this once the details are out.

Updated post Intel announcement

Ok - so having heard the news I think Otellini definitely needs his reward. Instead of taking some of the hard decisions that would have brought Intel's focus back, he took the weenie route and decided to lay off half the people who were hired in the last 2 years while he was COO and then CEO. I really don't have much to say. Nett result of Intel's efficiency and structure project as reported to "mama" after getting home from school today:

1. Sold some loss making businesses - DUH
2. Fired lots of people we hired in the first place - TSK...TSK
3. Skinned my knee when someone in the board room pushed me over but I didn't cry - YOU BRAVE BRAVE BOY!

Monday, September 04, 2006

Contention is key

I got some great feedback:

Anonymous said...


If you want to start the ball of discussion rolling,
you need to kick the ball around and not just toss it out there.
For example on your blog on the AMD/ATI merger FUD, it is too generalized. You need to add more of your own opinions on what kind of risks AMD has not forseen.
Maybe Hector Ruiz will suffer a nervous breakdown or fist fights broke out in meetings?

So I'm going back to the posts to make sure I'm driving my POV home...and picking a side.

Sunday, September 03, 2006

New Bed-fellows

With ATI and Dell no longer close partners for Intel, I'm betting that the impact will be to draw Nvidia and HP closer to Intel. Last year Intel signed an MOU with Nvidia for joint development. While I don't believe I saw details of what they would develop, I'm sure right now both those companies are discussing how to get close and comfy. As for HP, they are focussed on displacing Dell. At last they've remembered their roots and have started to innovate with their products. Their new marketing campaign (they hired Satjiv Chahil from Apple) does not seem to be hurting them either. Now that Dell has embraced AMD, HP will use this to gain leverage with Intel and slide deeper between the sheets with them. Specially since Intel now has some processors that do not suck.

While both these would be relationships of convenience, they would not bode well for AMD if they materialise. Some details of Bearlake are now available and dual GPU is supported. I'm inclined to believe Intel will support SLI over Crossfire. I'm sure there will be more coming from Intel & Nvidia.

On the HP front, I believe they will more and more leverage Intel's platform solutions and possibly brands to differentiate themselves from the others. Their renewed focus on innovation around the PC will sit nicely on top of the platforms. I think they will continue to gain share at Dell's expense. And ride higher ASPs as Dell's decline because they are bringing more value to the end user. My guess is 3 quarters from now HP will be more concerned about Apple (at least in mature markets) than Dell. We'll go there later. Dell will still be a screwdriver company searching for direction. And AMD will have won them at a point when their star is descending. Right now HP knows they can get any price they want from AMD since they had a common enemy - Dell+Intel. Now, they will always suspect AMD may be giving Dell better pricing and their unified stand against Dell+Intel is going to fray.

On the pricing front, Intel's uniform pricing for desktops is inevitably going to trickle down to notebooks. The desktop pricing change was probably to reduce the gap between the OEMs and the unbranded channel where Intel sees a higher ability to lead the market to their newest products. But there is also a huge upside on OEM relationships by taking the suspicion that a competitor is getting a much better price out of the equation. This may not help HP or Dell but it helps the smaller OEMs...specially local OEMs. It may even help the guys at Voodoo. Right now Intel is milking their lead on notebooks but it's only a matter of time before their smaller customers start demanding uniform pricing there too. Once this happens, AMD has a couple of paths. They can continue to use discounts to win deals. However, the flip side is their customers will be telling them Intel doesn't surprise me...or stab me by giving my competitor an even better price. The other route is to follow Intel and also establish uniform pricing. This I think will be good for the industry overall. The PC business is sadly filled with too many players not adding any innovation and instead have almost a commodity trader's mentality. Where price is everything. Bringing innovation back and reducing the focus on price as a key advantage is something I think can only be good for the industry. Can you imagine if we had another 3 companies who were able to innovate like Apple???

So here's where I think this is going. Intel will drive uniform pricing. AMD will not because they don't have the size or position yet to afford to walk as much as they may like to if their customers squeeze them on price. Intel will fight the price war as long as they need to till AMD starts to bleed. It's what they've done every time and they will do it again. ASPs will spiral down over the next 2 quarters as will profits. In Q4 AMD buys ATI for 5.4 billion. At which point they have borrowed 3 billion and just the interest on that will probably wipe out the quarterly profit they're making. Intel will drop prices again before the end of the year and bring Conroe mainstream. Merom is entering at exactly the same price points as Yonah so that transition is a no brainer. At which point AMD will be forced to drop prices again to ensure their factories are filled or gross margin goes through the floor. For the next 6-9 months there is blood everywhere. At the end of which AMD will have emerged in worse condition financially. Though Intel won't be sparkling but they fact they're cutting costs now before things get further out of hand will help. The other pressure tactic from Intel is the introduction of a new product almost every year and a new architecture every 2 years. At which point AMD will be forced to make some difficult choices on where to use their resources - protect the existing PC franchise or invest in building platforms. Hector will be forced to cancel or scale back some of his initiatives. Perhaps things like PIC will drop off. We'll still have a duopoly but AMD will risk being a player only in the PC category while the exponential growth comes from new initiatives like platforms, next generation wireless - Intel has a lead w/ Wimax, convergence of PC & CE (kind of linked to platforms) where Apple will rule and HP will wish they did, etc.

Saturday, September 02, 2006

20 Conroes to feed a worker???

Sharikou claims Intel needs to sell 20 Conroes to feed an employee for a month which I thought was just too plucked out of the air to let pass. Let's use his previously stated assumptions to analyse this.

He's told us in the past Intel's cost of manufacture of 1 cpu + chipset is 100$. I'm gonna make the assumption that the Conroe CPU cost is 80$ - for a couple or reasons. First - Intel chipsets sell for around 40 bucks. I assume Intel doesn't give them away so mfg cost out of a hundred bucks should be 20-30 bucks. I'm also going to assume a higher CPU cost for conroe right now as yields are probably not yet stable. I then assume out of 20 CPUs the mix is C2E - 5%, 6700 - 15%, 6600 - 20%, 6400 - 25%, 6300 - 35%. Frankly, I think assuming the 224$ upward price point will constitute 65% of the mix is generous. My gut is more 80% will be the 6300 & 6400 parts but let's go along The math gives us a profit of ~4600 $.

From this, we need to remove the operating expenses per employee. From Intel's 2005 balance sheet this is ~11 billion $. Amortising this over ~100,000 employees gives us a monthly operating cost of ~9,150 $ per month. So Intel would need to sell at least 40 Conroes a month to feed a worker.

Now I understand this calculation isn't scientific or would hold up to any accounting standards. However, it's a lot more scientific than yanking a number out of my back pocket.

Thank you Sharikou

Sharikou has kindly linked to my blog...and I have to admit his name is cleverer and less personal than the title I came up with. I did start this blog with the intent of not blindly supporting one side or the other regardless of the facts - a pattern of behaviour about Sharikou that was frustrating me. However, I had no intention of turning this blog in an attack on Sharikou.

On to more important things. Seems like Intel is about to announce the layoffs everyone has been expecting. It is a pity that so many will have to pay the price for the systemic incompetence of Intel's senior management. I think if Intel does not report brighter results by Q4, they will be looking for a new CEO. Since Otellini was COO and then CEO while Intel grew by 20 thousand people in 12-18 months.

And yet again, we see a brilliant decision from Intel to get into the discrete graphics business. OMG - don't these guys ever learn. If they can't deliver reasonable integrated graphics, why would they think they can match Nvidia or ATI on their home turf. I don't get it...someone explain to me why they would go down this path and not work with Nvidia or acquire a company with the technical capabilities?

Friday, September 01, 2006

Managing the ATI acquisition - the price of failure

Undoubtedly AMD has been executing well in the last couple of years. This is leaving everyone with a sense of confidence that they will absorb ATI smoothly. However, what happens if they fail on the following fronts:

1. The botch up the absorption of ATI and it's employees. The entire merger becomes messy and dysfunctional.

2. They fail to make the integration of GPU & CPU onto the same die a commercial reality (different from a technical possibility). Or at least they fail to do that in the next 2-3 years.

3. They deliver platforms but cannot gain incremental margin because they are unable to create brands out of platforms. Brands are critical. They allowed Intel to charge a premium for their Centrino platform. Without a brand, the platform can just end up as the sum of the parts are no greater than whole. Whereas Intel clearly has been commanding a premium for it's platforms.

Nobody is asking the question...what if they fail? The interest on a 3 billion $ loan will not be chump change. Everyone is assuming Hector and team know something. But what if they don't. What if they realised that they needed the platform capability to compete with Intel. That CPU prices are falling like a rock. Growth is coming from emerging markets and at some point a mainstream PC may cost as much...or even less than a mainstream cell phone.

Thursday, August 31, 2006

AMD & ATI - attacking in the short term

There's a lot of discussion around why AMD bought ATI. Two things that seem to rise to the top are AMD's need to have platform capabilities to compete with Intel and integrating GPU and CPU onto the same sillicon. However, both these will not come to fruition quickly. Assuming a realistic timeframe for either of these to come alive will be 2008, I'm guessing AMD will begin to attack Intel's integrated graphics business. Intel is the #1 graphics vendor (I'm not debating quality of graphics here) and AMD now has an opportunity to slow this business. I believe they will do two things in 2007 - both are sales & marketing tactics:

1. Traditionally ATI and Nvidia have not promoted their low end graphics cards. This has allowed the graphics card market not to be commoditised the way the CPU has. I think AMD will now market ATI's low end graphics as a better quality solution just above IGP or perhaps even match the Intel graphics solution at the PC BOM cost.

2. They might adopt a sandwich strategy by bringing their integrated graphics below Intel's in price...or perhaps equal but offer better quality.

These two things can make things very difficult for Intel in 2007 as AMD gets ready for their bigger assault.

Let rationality and logic prevail

I've decided to start this blog as a forum to facilitate the intelligent conversation around the AMD and Intel contest in the marketplace that could be happening on Sharikou's blog but unfortunately keeps getting sidelined by Sharikou's blind fanatacism for AMD. This is a place to analyse and provide a truly intelligent POV. While it may be less fun than trying to get Sharikou to admit he's wrong, hopefully it will be more stimulating and thought provoking.

While I do not intend to moderate the blog heavily, I do intend to use moderation to ensure this doesn't degenerate into a circus. As the title suggests, I will permit rebuttals to some of Sharikou's outrageous and illogical conclusions.