Silverthorne - Intel's silver bullet

Check out this article on Businessweek.

Both the analysts and the press are failing to realise the true value of Silverthorne. A SOC that's as powerful as today's computers at a fraction of the size and power consumption but most importantly ridiculously cheap to manufacture. At 2500 chips per wafer which is roughly 10x today's CPU's, Intel is basically able to manufacture Silverthorne at 1/10th the cost of say a Conroe CPU today. I know this is a gross over-simplification but I'm just approximating here to set the context. Let's assume a Conroe CPU costs anywhere between 50-80$ to manufacture. Hence, Silverthorne could end up costing as little as 5-8$ to manufacture. So even if Intel sells the part at 30-40$, that's a really sweet profit and some awesome gross margin.

Now think about all the places you could put a small, low power, high performance IA CPU:

- Ultra mobile PC's
- MIDs - the new devices Intel is touting.
- Consoles
- Handheld gaming devices
- Education devices for developing countries.
- Cheap PC's or laptops for emerging markets.

Man...the possibilities are phenomenal. Now consider the tremendous pricing advantage Intel will have. No matter how much AMD cuts prices, they can't win if Intel has a part where they turn a hefty profit even if they sell at AMD's cost price.

What Intel is creating here is the Toyota Corolla of the CPU market. Affordable, reliable, reasonable performance and fantastic value for money. They finally figured out that's it's not enough to trim headcount and operating expenses to bring down costs. They must have a true low cost part and not keep down-selling their best technology by reducing cache or removing features and selling it as a Celeron. The low end of the market is a reality and to win it, you must build the right products and brands for it.

If the analysts thought Otellini was only referring to re-structuring when he was talking about profits growing faster than revenues at the analysts meeting last week, they missed the point completely. Silverthorne if handled right will bring awesome profits even if it doesn't grow revenue at the same proportionate rate as the traditional CPU biz.

Hector and team instead of borrowing money and still shooting for 30% market share should be reducing costs and trimming headcount. They are too far behind Intel in terms of products for where the market is going. Barcelona will not save them this year as it will really begin to impact the financials next year...and Penryn is looking pretty good too. Intel is flanking them from all sides - product, manufacturing, cost and just plain old managing the business.

Expect AMD to lose another 500 million or so in the next two quarters.