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.
Subscribe to:
Post Comments (Atom)
20 comments:
It does not appear as if Sharikou Ph.D. chose not to post my comment to http://sharikou.blogspot.com/2006/10/hexus-misses-main-point.html blogpost.
In the interest of full disclosure I herewith post the comment which I submitted in response but somehow Sharikou Ph.D. refused to make public:
Sharikou
If you are so confident in your Q2'08 Intel bankruptcy prediction, why not offer
to the world that you abandon this blog and will instead concentrate on your AMD
marketing day job?
Well, since I know you won't take me up on it how about this: I'll offer
$10,000 (US) to you payable by Certified Check if Intel indeed files for Chapter
11 bankruptcy protection on or before Q2'08 (Calendar Year Q2'08 meaning
April-June 2008).
If Intel does not file for Chapter 11 bakrupty protection on or before Q2'08
you shall pay me $10,000 (US)and I shall donate it to a public charity in full view
of the world.
If you are serious, reply to me in your blog for all to see. Oh, and I am happy
to hold my $10,000 (US) in Escrow and have this process be in the clear for all
to see.
Antisharikou - dude, while I understand where you're coming from, I kind of agree with Ashenman. Sharikou is sharikou - if he's misinterpreting the data or misleading folks, by all means catch him out at his blog or come down here. But he's not really worth 10 grand or the agitation.
Instead, vent all you want here. Point out the gaps in his arguments, counter them, do whatever you want (but without making it personal) and I'll be happy to post it. As I said, this blog is to facilitate the discussion that could have been happening over at the Doctor's house.
at 3)
conroe kicks ass, yeah !
Intels production (no: shipments of) will be 50% in Q2/07 (3rd Quarters from now) leaving 50 % of intels size(>= 62.5% of market) to AMD & Pentium Flavors (guess were i am favorable, still AMD's cpu shares performance of Conroe, the Pentiums NOT).
at 4)
Dell goes "DUAL-WAY", i would say.
Ask why ?! Dell was waiting the long years, saying "INTEL will come out with a "KICK AS CPU" ".
Why now, as KICK-ASS has arrived ?
Does Dell know anything, we dont ?
at 5)
to me it is unknown, wether Aplle Cpu are accountet in Intel sales that way, these (apples) are IN x86 / x64 marketshare.
If not, substract a %age off of the 83% ?!?!
at 6)
Combined Plattform ??!! We will see, what can be intergrated in one die ... . ... once there is fab capacity ...
There are enought OFFERS here.Slot & socket - Interconnect. We might see a ADM-CO-CPU in the not far future. I guess for each cpu / gpu there is a "logical drawing / layout" which can be copied "cut & past way.
That for it is not unrealistic to some parts of a athlon/sempron replaced by parts of gpu (floatinpoint or else).
We should remember the thoughts of modularisation in q2-cc.
regards
calzone
I agree with you on Dell. I've made a similar comment earlier. Dell's only pricing advantage now comes from volume discounts and they're not happy. AMD is giving them product at huge discounts and Dell is pushing AMD agressively. This also enables them to hit the volumes AMD is holding for them. Though I think they missed the number in Q3 which is why AMD is holding incremental inventory.
AMD's inventory could be a build up for Q4 demand which is historically the best quarter for sales. 15% increase isn't much as the demand is estimated to be strong in next quarter.
Dell went AMD all the way because they're now at the bottom of Intel's shipment priority. They cannot operate in such an environment and its the price they have to pay for using Opteron in the 1st place.
Probably half the margin fall for AMD came because of Dell pricing.
As AMD and Dell move closer, and Dell's marketshare slowly reduces, watch these two bring each other into the RED.
Anonymous - we are both thinking the same thing. Add to that the cost of servicing the debt AMD is taking with the ATI acquisition and it's going to be tough for AMD to stay in the black.
I think if anything, Dell could use AMD to pull itself out of the gutter. It'll get super cheap laptops, super cheap dual core desktops, and hopefully, be able to take back some market with those. People don't actually necessarily know core2 is that much better, and for most people, dual core is a big upgrade, so they'll be happy with the performance increase anyway. If Dell does the same thing with AMD servers, as it's doing with desktops and laptops, it'll be the same idea. You'll notice HP is increasing the prominence of AMD systems as well, while putting them at comparable price points, meaning that it'll simply be pure luck or even distribution where core2 and amd overlap, and growing amounts of amd sales in the lower end.
I don't see how AMD having alot of sales through dell will mean dell will pull it into the red when/if it goes into the red. AMD is just selling lots of processors to Dell, HP, Lenovo, and Founder (maybe Gateway too, but I've only heard that, their website didn't reflect it last time I checked). So if Dell goes under or asks for too low of prices (which it can't do, since AMD pulling out would completely destroy Dell, and AMD will not be stupid enough to be hurt that much) that just means that AMD will have more inventory that can be sold to all those people who are saying they can't get their chips. If Dell dies, that would actually theoretically be good for AMD, except that they'd have about the same inventory they did a year ago, that they'd probably quickly sell to the channel. Dell is nice for AMD, because it gains them marketshare, and that's what they care about most, so that they have some reason to have enough production to be able to supply a large enough portion of the market.
Greg - I think you're wrong on Dell being able to use AMD. Dell's problems began in Q2 last year when they started to agressively promote low end systems to gain market share. The problem is their web model is successful because people tend to buy up during their online purchase. By pushing low end, they defeated themselves because
1. That segment of customer doesn't want to buy incremental features or service.
2. When you start low, there's a limit to how much incremental share of wallet I can squeeze out of you.
It took them 2 quarters to realise their mistake but unfortunately that was the opening HP and the other's needed. Hence, if they use AMD to go after low priced consumers yet again, they're getting back into the same hole. While I don't think Dell is going red soon, I think the intent of the comment is that being a low cost volume player is a defendable position only as long as you actually have the lowest cost. Unfortunately, over time other's have caught up and Dell is feeling the pressure because they are a technology player without a technology or any other kind of ownable/sustainable differentiator.
Actually - I'm glad you brought this up cos I think I'm going to do a post on Dell.
On the Dell/AMD relationship - I think your perspective is a bit too black or white. Which means it's either this or that. There are middle grounds and I don't think either Dell or AMD mgmt are stupid that they would sink completely with each other. However, in this case I think Dell is more of a dead weight on AMD than vice-versa because they have no clue what their strategy should be and so they will keep on doing what they know - trying to make it cheap. AMD on the other hand has enough intelligence when to say no to Dell. The issue however is after so long, it sends the wrong signals to the market if they start pulling out of specific deals w/ Dell. It also screws their capacity planning assuming the 10 million unit commit from AMD to Dell as per the Inquirer is true. So from this perspective I think you're right with your last statement. However, the key here is also being able to sustain ASPs & margins at the same time which I think is where Dell is dragging them down.
On the channel issue - read the other posts and the AMD earnings transcript. AMD is screwing the channel and this will come back and bite them.
Anonymous - we are both thinking the same thing. Add to that the cost of servicing the debt AMD is taking with the ATI acquisition and it's going to be tough for AMD to stay in the black
Then you are both wrong. AMD's margins will steadily increase. Staying in the black won't be that hard for AMD. Still, I'll give you credit for wishful thinking.
Here's a good comparison point. K8L is not available yet but has already been announced in two big wins for supercomputing systems. Opteron has a third and an upgrade on an older supercomputer to dual core Opteron was just completed.
Woodcrest which has been available for awhile now has no big supercomputing wins.
The remarks about how Dell will put AMD into the red is just typical circular reasoning. Packard Bell was the number one volume manufacturer until they were displaced. eMachines and Compaq have most of this market today. Gateway was the pioneer of mail order until Dell overtook them. However, most of your assumptions about Dell are incorrect. Dell is indeed moving strongly into servers which are much more profitable. This has only been a recent thing for Dell so it isn't showing up yet. Before this move by Dell they were a bit lost in terms of servers because they were overshadowed by Sun, HP, and IBM. This is the first time that Dell is striving to move up in servers. I'm sorry to disappoint you but you'll need to wait at least two quarters to see how this is working for Dell.
Ashenman - my post was AMD won Dell 2 years late. I never said Dell took 2 years to realise their mistake. I said AMD would have benefitted more if they had won Dell 2 years ago. Suggest you re-read my post and subsequent comments through the blog. Dell is screwed and they are dragging AMD down by squeezing them on price and using them in the low end of the market. This is specially tragic when AMD has done a pretty good job of building their reputation for quality and hence been moving their ASP north slowly but steadily over the last year or so.
One more point Ashenman - you and Scientia are conveniently ingnoring something I said in an earlier post. These low end deals and holding large volumes of capacity for Dell would be fine if AMD was not capacity constrained and starving their channel of product. If they were doing these simply to keep their factories running full I would have no problem.
However, the simple laws of economics will tell you that when your price continues to drop even when your demand outstrips supply then you have a problem with your business.
I said it took Dell 2 quarters last year to realise their strategy to gain market share and hence drive revenue/profit by focussing on low end systems was backfiring. This is when their revenue/profits started to slide. Seperate comment from my post on how AMD has won Dell 2 years too late. Hope that clarifies - it's 2 different points. It was as a solution to this problem that Dell launched the XPS brand, their "perceived" high end gaming line up and started agressively packaging premium service contracts for consumers.
My take is Dell thinks they can now have their cake and eat it. By using AMD at the low end and buffering it with Intel at the high end. Unfortunately, I am starting to think Rollins is just plain incompetent. If he understood even the fundamentals of business strategy he should know he cannot be both low cost/high volume and high margin/lower volume. Unfortunately, it doesn't work that way. And Dell's secret sauce - inventory management is no longer a sustainable advantage. They have run out of ideas and they're grasping at straws. Which is why HP is continuing to take share in spite of focussing on the higher end of the market. Because they have focus and a clear and distinct end user positioning.
The more I think about it, the more riled I get that Dell the machine is slowly being laid waste by someone who can't do the job. I'm forming the next post even as we speak.
Dell is screwed and they are dragging AMD down by squeezing them on price and using them in the low end of the market.
Then who is screwing Intel? I am still baffled how you can give your doom scenario for AMD and then fail to understand that Intel's margins are lower and that Intel has not yet gained either revenue share or volume share. If Dell is dragging down AMD then what is dragging down Intel at the same rate?
These low end deals and holding large volumes of capacity for Dell would be fine if AMD was not capacity constrained and starving their channel of product.
Then the question you've overlooked is why Intel didn't gain in volume share. We know that AMD was at its limit; why couldn't Intel take advantage?
However, the simple laws of economics will tell you that when your price continues to drop even when your demand outstrips supply then you have a problem with your business.
Well, this is a textbook point and would be valid if we were talking about static production. But we aren't. AMD's capacity continues to ramp and AMD will be able to get back into the channel in Q1 07. This is soon enough to avoid too much loss. Frankly though you also don't seem to understand Dell's role in this and I'm a bit puzzled about that.
Scientia - AMD gained 1 point of share...Intel gained 3 points in Q3. MOMENTUM is shifting from AMD to Intel. Nobody said anything about doom & gloom. I'm not predicting AMD's demise. I am predicting the shifting of momentum in the marketplace.
As for who is screwing Intel...the answer is HP, Lenovo and most importantly their really bad Netburst technology. Basically, they are screwing themselves with excess capacity. They are building inventories to keep their factories full and then moved their product line down the pricing stack which hits margins. But - the difference between AMD and Intel is Intel has the scale to weather a 100 million $ write off because on a profit base of 1.4 billion it's a relatively manageable financial impact to Wall Street. However, the relative impact of a 30-40 million $ (number is for illustration only - not a prediction this is what AMD will write off) write off is bigger for AMD if they are unable to move their inventory. This is what Intel is hoping to do. Place financial pressure on AMD which limits their ability to continue to invest in their business at the same pace...basically try and slow them down.
On the margins - I'll grant AMD the 200 basis points they are saying they will recover through better product planning. But I'm probably going to re-visit that once I see what products Dell is pushing in their notebooks at sub 500$. If those are dual core Turions then I'm going to have second thoughts on their ability to re-gain margins.
As for servers - Dell has been in this business for over 2 years now but is just a "box" player in this business. Let me know if you're not familiar with the phrase and I'll clarify. Essentially, this is also a relatively low margin end of the server business. So unless they have tremendous growth against HP, IBM and Sun who are all extremely strong, it's unlikely they will gain a lot of share...specially share of revenue here. It may offset some of their margin losses on d/t and n/b but let's wait to see the results in a couple of qtrs.
Share - Intel did gain share...just as AMD did. But they both got it from Via. We'll see next qtr what happens. But the point here is AMD was on a roll winning share consistently qtr after qtr from Intel. If there was 4% share from Via to be had and Intel got 3 points and AMD got 1 point then my comment that momentum will swing back to Intel is on track. Just as the rest of my call on the qtr has been...except for the fact that Intel was a little above their revenue mid-point. Something I did not expect them to do.
On my text book point - there's a reason text books are written. Because at some point they have valid application into real life. Here's the issue. Yes...AMD will grow capacity. But in the time, they will have alienated the channel by shorting them on supply on top of which Dell is now under-cutting them severely on pricing. This causes the channel to dis-trust AMD and when AMD does have capacity, it will take them some time to win back the channel if the impact of the short supply is broad. I know you folks don't think the channel is a big deal but I do and we'll have to wait and see how this plays out.
Momentum normally implies a change. Intel has had no change in either volume share or revenue share. How do you get momentum without change?
Scientia - Intel gained 3% points of market share. I've posted the link to the Mercury Research article - suggest you read it first. And you cannot substantiate the revenue share comment because nobody knows at this point. We'll probably only know when IDC publishes results 2-3 months from now. If you can prove it...do so.
Ashenman - of course Dell holds a grudge. They're pissed at Intel for not giving them the price advantage they've had in the past. This industry is full of companies wanting revenge on other companies for screwing them. AMD is pissed at Intel. Intel is pissed at HP. HP is pissed at Intel. Microsoft is angry at Intel. Apple hates Microsoft. Everybody in the business has a love hate relationship. Because in some places they have symbiotic relationships and in other places they compete either for customers, mind-share or share of wallet. Every time someone cuts a deal with someone else, you can guarantee the butterfly effect results in somebody else feeling like they got screwed.
With channel - it's a matter of trust. When they call their disti for product because a customer walked in the door and then lose the sale because there are no parts, guess what - they won't make the same mistake again. They will start recommending someone else's product. Intel faced this 2 years ago due to chipset shortage and it has taken them almost 2 years to re-gain the trust of the channel. If the AMD supply shortage in channel perseveres or gets more aggravated, the ripple effect in channel will spread further and further and it will take them longer to re-gain their trust and support.
Having said that, I think AMD has decided they need to win the corporate market using platforms and to do this they need the OEM customers. This cannot be done with the channel leading. I suspect as I said earler, Hector is in a hurry to reach 30% market share because at that point he gets critical mass.
Post a Comment