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 Dell...to HP...to 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:
http://biz.yahoo.com/seekingalpha/060928/17679_id.html?.v=1
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:
http://sharikou180.blogspot.com/2006/09/new-bed-fellows.html
Thursday, September 28, 2006
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:
http://www.forbes.com/2006/09/27/intel-amd-earnings-markets-equity-cx_rs_0927markets02.html
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.
http://www.forbes.com/2006/09/27/intel-amd-earnings-markets-equity-cx_rs_0927markets02.html
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:
http://www.intel.com/idf/us/fall2006/webcast.htm
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:
http://voodoopc.blogspot.com/2006/09/be-on-lookout-for-pink-bunny-at-idf.html
It should also put an end to Sharikou's conjecture that Intel can't sell 400k Conroes:
http://sharikou.blogspot.com/2006/09/intel-needs-to-lay-off-80-of-its.html
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 - http://www.alanwake.com/.
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.
http://www.intel.com/idf/us/fall2006/webcast.htm
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:
http://voodoopc.blogspot.com/2006/09/be-on-lookout-for-pink-bunny-at-idf.html
It should also put an end to Sharikou's conjecture that Intel can't sell 400k Conroes:
http://sharikou.blogspot.com/2006/09/intel-needs-to-lay-off-80-of-its.html
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 - http://www.alanwake.com/.
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:
http://sharikou.blogspot.com/2006/09/amd-is-so-innovative.html
You can see the AMD site here:
http://virtualexperience.amd.com/
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:
http://www.ngohq.com/home.php?page=articles&go=read&arc_id=112
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.
September 12 - Sharikou posts this extolling AMD's new site and how innovative their marketing is:
http://sharikou.blogspot.com/2006/09/amd-is-so-innovative.html
You can see the AMD site here:
http://virtualexperience.amd.com/
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:
http://www.ngohq.com/home.php?page=articles&go=read&arc_id=112
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...
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™
OPTICAL DRIVE 16x DVD+/-RW Drive
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™
OPTICAL DRIVE 16x DVD+/-RW Drive
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:
http://biz.yahoo.com/ap/060920/dell_warning.html?.v=1
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 by...you 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.
cheers
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™
OPTICAL DRIVE 16x DVD+/-RW Drive
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™
OPTICAL DRIVE 16x DVD+/-RW Drive
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:
http://biz.yahoo.com/ap/060920/dell_warning.html?.v=1
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 by...you 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.
cheers
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)
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:
http://biz.yahoo.com/bw/060913/20060913005428.html?.v=1
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.
http://biz.yahoo.com/bw/060913/20060913005428.html?.v=1
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
Link to press release
Monday, September 11, 2006
Deja Vu - 2002 all over again?
I found this old article from 2002 on "thestreet.com" 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.
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.
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...
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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.
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 $. Going from 90 to 0 is a lot easier than going from 800 to 0.
I don't think AMD had a choice if they wanted to stay competitive in the longer term. Timing of the deal is not perfect but I think they did the right thing biting the bullet now rather than later. Hector and team have shown a high ability to manage the business but the next year is going to be tough. Any mis-step can cost them dearly. Which further tightens their ability to resource the incremental things they need to grow. And I think the first likely serious set back will be market and then revenue share reduction due to the price war + Conroe launches leading to a quarterly GAAP loss in the next 2-3 quarters.
But I'm not here to pound ATI. Naturally their stock price is down post market close. However, AMD is down 3% post market having dropped 6.45% during market. Now it was a bad day for tech but this is going to raise questions on Wall Street and with shareholders on the financial wisdom of the deal. There is a chance that from a revenue & profit standpoint ATI may not be bringing the same level of upside in 2007/2008 as AMD projected. In addition AMD is locked in at 22$ 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
Impact:
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.
Projected savings - 2 billion in 2007 & 3 billion in 2008
Impact:
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.
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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!
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...
180:
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.
Anonymous said...
180:
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.
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.
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?
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.
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.
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