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Intel Corporation Message Board

  • semiwiz2002 semiwiz2002 Sep 28, 2012 6:25 PM Flag

    Intel - debunking a myth

    Intel: Debunking A Myth

    The Myth: Intel (INTC) can't compete in the low margin mobile SoC business.

    We will use data from Yahoo Finance and some forth grade arithmetic to demonstrate how silly this is.

    While we can't know the exact gross margins a any particular device, a company's overall gross margin will serve as a close approximation for the individual device margins.

    Let's use a mobile chip that sells for $10 to make the arithmetic easy. for the first supplier we will use Qualcomm (QCOM). QCOM has corporate gross margins of 67%. since a good size chunk of QCOM's business is cost-free revenue from patent royalties, we will reduce this 67% to 60%. Fair? Ok, QCOM will pay their wafer supplier, TSMC (TSM) 40% of the $10 or $4 for that chip. TSMC, in turn, has corporate gross margins of 45%, so that chip that they charge QCOM $4 for has a manufacturing cost of $2.20. That $10 chip has a total gross margin from manufacturing to the end user circuit board of 78%!

    Let's compare that to the same size device supplied by Intel. Since Intel is thought to be a higher cost manufacturer (I don't think this is true, but we'll throw the Myth Believers a bone), we will use an Intel manufacturing cost of $3. Intel likes to get 65% gross margins, so if we divide by .35 we will get the Intel full margin price to the end customer of $3/.35 = $8.57.

    Now, let's assume that Intel is not the high cost producer and that their cost is also $2.20. In this case a full 65% margin final price from Intel for that $10 part would be $6.28!

    Of course, the best technology available to QCOM would be the TSMC 28/32nm node.

    Let's assume that the Intel version of our fictitious chip is built on their 22nm process. That would make the chip 40% smaller that the 28nm chip. It would also be 40% cheaper, so that would give us an Intel cost of $1.32. Plugging the 65% gross margin onto this cost would give an end customer a price of 3.77.

    Just to bore you further, consider this chip built on Intel's 14nm process. The cost drops to $.55, the end price drops to $1.57.

    This is how we get to a $100 smartphone cost and a $200 retail price to you and me.

    So, the myth is not only false, but the cost and competitive advantage that Intel has over the competition is so overwhelming and smothering that for suppliers like Qualcomm and Nvidia (NVDA), even selling at cost doesn't do any good! Oh, and the mobile SoC in not a low margin business.

    Does this give us an idea why Apple (AAPL) has decided to design their own SoC and deal directly with the semiconductor manufacturer?

    Texas Instruments (TXN) has figured all this out early and decided to exit the mobile SoC business.

    Sentiment: Strong Buy

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    • The question is not whether they can produce chips cheaply enough, rather its whether they can sell many of them. They cant sell to Apple or Samsung (since they make their own chips) and most of the device market is cornered by these two.

    • Texas Instruments (TXN) has figured all this out early and decided to exit the mobile SoC business.

      1.) TI pioneered the SoC (cell phone on a chip) and adopted fab lite/ manufacturing outsourcing of advanced technology to TSMC long, long before AMD; TI did evreything "right"
      TI's withdraw from mobile market is not a surprise to me -
      sometimes it's smarter to walk away from business in particular if you don't have control of manufacturing aspect - TI will have great future in analog
      2.) this "market" is as thick as a brick (see FB IPO - stupid is as stupid does)

    • lol
      Is Intel's Clover Trail SoC a "bloated nightmare" (fast forward to answer: Y)
      By ibexx88 . Sep 29, 2012 2:09 AM . Permalink
      Intel recently showcased a number of Windows 8 tablets powered by the Atom SoC Z2760, aka "Clover Trail." 

As we've previously discussed on TG Daily, Santa Clara faces an uphill battle in the lucrative mobile space as it attempts to compete against low-power sipping RISC-based chips designed by ARM that currently dominate the smartphone and tablet markets.

      Unfortunately, it doesn't seem like Clover Trail will be helping Intel's mobile campaign anytime soon, at least not according to Silicon Valley tech guru Charlie Charlie Demerjian. 

      "Clover Trail is massive, so big that it is not economically viable in the markets that [Intel] is fighting for," Demerjian wrote in an analysis posted on SemiAccurate.

      "That promise from the last financial analyst day of good margins on Atom in the phone/tablet market would go up in smoke if Intel released the die size, and they know it. Intel can't compete in tablets and phones."

      According to Demerjian, Intel is on its third-generation Atom DX hardware, but still can't get it working properly. As such, Clover Trail is DX9, "while the competition is all DX10 or DX11 and has been for years."

      Demerjian also reported that Clover Trail runs Windows 8 at "barely tolerable speeds" - even with the massive "hardware hacks" Intel allegedly put in place to fake performance. 

      "Bloat the die size, add in vastly more DRAM and storage because Windows needs at least 10x what Android does, and suck far more power to do so, and this is somehow a viable product?" he asked rhetorically.

 "[Seriously], you need a bigger battery to simply attain parity on power driving up the BoM cost yet more."


In addition, says Demerjian, Clover Trail is a "locked down" nightmare, as it shuts out Linux and supports a locked bootloader as per Microsoft's specifications. 

      "Intel could have stopped this monstrosity, but didn't even tepidly condemn it. Internally, they know it will fail, SemiAccurate has seen their sales estimates last summer, but wouldn't do anything to make the devices bearing it even marginally palatable.


"[Simply put], Intel does not want to sell Clover Trails because of what it will do to their margins - they are desperately afraid of it. It has neither the CPU performance of the smaller die Core iSomethingmeaningless nor the power savings of ARM CPUs. It is vastly more expensive to manufacture and no one wants it," he added. 

      • 1 Reply to singhlion2001
      • Intel has reached a critical juncture by leapfrogging others, puts them in a different league.
        All information stated above is based on guess work based on medieval understanding of fabrication. Intel is years ahead and will only divulge the real specs of SoC’s on need to know basis while keeping all its competitors at bay.

    • well said

    • You are so right. Intel has such a deep moat and they know where their strengths are. What catipulted the age of computer processing is Intel. After all, the computer is nothing more than stuff wrapped around a processor. And no one, and I mean no one, has ever come close to matching the superiority of the Intel processor. Let them try. Everything wrapped around it can be swapped and changed out, but not the processor. Intel is superior at what it does best.

    • baltimoreravens_suck_coggg baltimoreravens_suck_coggg Sep 28, 2012 8:32 PM Flag

      Translation: The rest of the players are FOOKED when Intel starts shipping 14nm chips in BULK. Texas Instruments did their math and are cutting their losses?

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