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Intel Corporation Message Board

  • wallisweaver wallisweaver Jan 25, 2013 10:56 PM Flag

    Why Big Deals Are Imminent

    Intel (INTC) just finished 2012 $53.3 billion in revenue, $49.4 billion of which was semiconductors. About $4.4 billion was of lower technology and probably outsourced. The $45 billion left over was spread over about 350 million x86 processors (client and server) for about a $128 ASP. The average die size was about that of an i5 processor, or about 160 square mm. That average chip probably yields about 140 good die per wafer. The average wafer, therefore, generates about $18,000 in revenue. That means that 2.5 million wafers were run to generate $45 billion in x86 revenue. The company claimed that it was running below 50% utilization rate in the fourth quarter (to burn off some inventory), but the quarter before, 50% utilization was mentioned.

    So, Intel went out of 2012 with capacity of about 5 million wafers of leading edge technology. That means that Intel could produce $90 billion in revenue at full factory loading. 100% factory loading will never happen, so crank that back to $80 billion. The 2013 CapEx will be $11 billion ex the 450mm spending. The $11 billion will produce at least another million wafers per year or $18 billion worth of capacity that could be on-line by the middle of 2015. (Note: not all the $11 billion will go toward new capacity. About $5 billion is for maintenance of existing capacity, so about $6 billion will go to new capacity. Using the same reasoning, only $21 billion of the 36 billion total CapEx spending from 2011 through 2013 will have gone to new capacity, which is capable of producing about $63 billion in new output. Obviously the company had some capacity, that is still being used, before the $36 billion total new CapEx orgy began in 2011.

    Anyway you cut it; Intel has about $90 billion of total capacity today, with another $18 billion coming on in about 18 months.

    What's going on?

    Intel is noted for its ability to trim output quickly in slow times. Because of this the company didn't get hit hard in the Great Recession. The company is also noted for carrying some extra capacity, so that they never run short of the market on Intel products, but well over 2X the required production capacity is more than a little guard band for the upside.

    Is Intel management just dumb? I've never known that to be the case.

    What products need this type of technology? The chips involved need to be very fast, very low power, and physically large.

    PCs and servers need it, of course, that is the present $45 billion in business.

    Smartphone and tablet Application Processors and Baseband processors need the technology. That market, from low end to high end, might average $40 per unit with line of sight to 1 billion units worldwide by 2015-16. So there is $40 billion.

    High end networking chips can use the technology on a foundry basis. The rumor is that the Cisco deal is $1 billion per year. Maybe there is another 1 or 2 billion dollars in that market.

    FPGAs need the best technology available. Judging from the Altera and Xilinx recent cost of goods, that market is about $1.4 billion total.

    That's about it. If Intel got every penny of the expected high performance business it would explain the need for the $45 billion of new capacity that is sitting unutilized today. That still leaves $18 billion worth of future new capacity unaccounted for.

    What would it take for Intel to get every bit of the high performance business available in the relatively near future?

    The semiconductor industry is all about moving decimal points around. The number of transistors on a CPU chip has grown from 1000s in the beginning to billions today. A million times growth. The CPU clock rate has gone from a few megahertz to a few gigahertz in that same time. The word length has gone from 16 bits to 64 bits. A 64 bit word can carry something like 281 trillion times the number combinations of a 16 bit word! Memory chip size, in my career, has gone from 1Kb to 4Gb, a million times growth, six decimal points.

    The network business and the FPGA business combined do not move the needle much. A deal in hand from Apple for 200 million "A" something chips, even at $30 each, is only $6 billion, against $45 billion in new capacity? Not even close.

    In order to render all other technologies obsolete in the mobile market, something miraculous would have to happen. Something like Intel would have to reduce the power of mobile chips by a factor of ten; move the power decimal one place to the left. They would also have to move the speed performance one decimal point to the right, or ten times as fast as the best current technology. It wouldn't hurt if the price on such a device was the same as or less than today's price.

    The above conditions would be enough to move all of the mobile business to Intel in the short term. Maybe only factors of five would be good enough to make the move.

    I have no idea whether the immense amount of new capacity is aimed at a run for every dollar's worth of mobile business or not, but $45-63 billion worth of new capacity is a nugget of information that, if I were an analyst, I would ask Intel management about again and again until my voice was hoarse.

    That huge chunk of capacity needs to be used in the short future; it is a wasting asset.

    There is something unprecedented about to happen, and it has to happen very quickly in order to use that capacity. By the time whatever this is is known, it will be too late to take a position in Intel to make the really heavy sugar.

    I'm in Intel up to my ears.

    Sentiment: Strong Buy

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    • The Intel strategy in a nutshell:

      1. Deliver the most compelling processors and SOC's possible to the mobile market and every other market Intel aims to serve
      2. Demonstrate absolute performance and price/performance superiority over competitors products with (2x, 3x, 5x, 10x...whatever) while maintaining 60% gross margins
      3. Innovate faster than everyone else in the industry, ie; volume production 22nm 2013, 14nm in 2014, 10nm in 2015.
      4. Develop sufficient capacity to be seen as a reliable supplier to the world's most successful device manufacturers and enable new ones with leading-edge products.
      5. Forward price the products to a level that guarantees Intel price/performance advantage over competitors and make enough capacity for the margins to be favorable. No other company can replicate Intel's strategy because no one else is capable of that volume.

      That Intel's dual-core Atom for a $130 phone rivals Samsung's flagship quad-core ARM performance in a $600 phone is just a glimpse where Intel is going to take the industry.

    • I remember thinking when I first heard how many 22nm Fabs Intel were going to build that it was ambitious and so it has proved. However in the long run it is not an issue with Intel now branching into low power mobility as it will give Intel the capacity in the long run to produce a lot of mobile tablet/phone chips. Think of all that 32nm capacity that is currently producing Sandy Bridge. Next year it could be pumping out cheap Medfields and Clovertrail(+)s for the cheap tablet/phone sockets after the premium 22nm Baytrail and Merifield are released.

      It does not matter if the chips are then priced so cheap that the profit on each is only a couple of dollars as the 32nm Fabs would then be depreciated by then and more importantly it denies an ARM vendor a sale and Intel has to pick them off one by one. Who in their right mind would pick a quad-core 1 GHz A7 when the alternative might be a dual-core 2 GHz Clovertrail+. Intel actually has a mobile roadmap now where the n-1 process product will still be competitive and can fill the old Fabs when it is priced to go. In the long run all of Intel's capacity will be used.

    • Excess capacity at Intel can only be used to produce Intel chips. If they take on an external customer such as Cisco as a foundry, it will take some time before they can re-align their production mechanism to the new chip design during which the plant will remain idle. As a ballpark, it takes 4 years to produce a new chip. Since Cisco already has a design, it may cut that time in half. So for 2 years, the plant will depreciate. If they wanted to utilize this excess capacity as a foundry, they should have been working on it for the last two years.

      • 3 Replies to khitchdee
      • There is something unprecedented about to happen, and it has to happen very quickly in order to use that capacity. By the time whatever this is is known, it will be too late to take a position in Intel to make the really heavy sugar.
        -----

        Sounds great.

        Question: Why hasn't Intel moved it's baseband processors from TSMC's 40nm process to it's own LP 32nm?

      • "Excess capacity at Intel can only be used to produce Intel chips. If they take on an external customer such as Cisco as a foundry, it will take some time before they can re-align their production mechanism to the new chip design during which the plant will remain idle. As a ballpark, it takes 4 years to produce a new chip. Since Cisco already has a design, it may cut that time in half. So for 2 years, the plant will depreciate. If they wanted to utilize this excess capacity as a foundry, they should have been working on it for the last two years."

        [Once again you demonstrate that you have almost no facts at your disposal but it doesn't bother you. You just make stuff up. Intel rolls out a new node every 2 years. You must be thinking of ARM on that 4 years to produce a new chip. So, Intel isn't going to have anything sitting around idle for very long. And you don't know when the Cisco deal went down. Do you think they just negotiate these things and then start with no preliminary work? Your conclusions are not surprising from someone who doesn't understand why anyone would need more than an iPad for any computing purpose. Do you think engineers design new fabrication facilities on iPads too?]

        [Not to mention how you play both sides of this argument whenever it suits you. You alluded to ARM catching Intel on fabrication technology in 18 months but now say it takes 4 years to produce a new chip. Which is it, butkus? You can't have it be 18 months in one post and 4 years in the next. LOL]

        Sentiment: Strong Buy

      • they should have been working on it for the last two years.
        don't worry - they did -
        The production will leverage Intel's 3D Trigate transistor technology that is more and more emerging as a cash cow for the company beyond its own product range. Netronome said that the transistors will "shatter system benchmarks for flow processor performance, power and cost in network and security applications."

        The company also said that it will be able to take "full advantage of Intel's tools and proprietary modeling capabilities" and ensure that it has "uninterrupted product supply" as it can count of more than just one fab as production facility. Intel and Netronome did not release any numbers that would indicate production volume of network flow processors.

        Netronome is the third foundry deal for Intel. Previously, Tabula and Achronix announced that their FPGAs would be manufactured by Intel in a 22 nm process. It appears that Nvidia would also be interested in having Intel produce its chips. Intel, however, declined and said that it has no intent helping its rivals.

    • "There is something unprecedented about to happen, and it has to happen very quickly in order to use that capacity. By the time whatever this is is known, it will be too late to take a position in Intel to make the really heavy sugar."

      Russ Fischer

      Sentiment: Strong Buy

 
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