Intel profits spike but chipmaker faces challenges

What I don’t get is how most people can bash INTC on missing margins, missing deadlines, etc, etc yet give AMD a pass on their many, many troubles. How many billions has AMD lost over the last few quarters while INTC prints money?

Yet, when AMD reports tomorrow, they will give a different outlook than INTC and I can beat you how the market will react: AMD why up, INTC down.

That’s the reason I am out of chips – there is no reason INTC and AMD should be considered competing in the same league…..

the article misses a very large point to the atom processor – its not so much they want low end atom buyer to upgrade one day, but its to increase demand for high margin server chip that run the internet

“And they won’t be coming back.”

Oh, really?

They guided to 58% +/- in Q3, and maintain 57% for the year.

Intel posted a *great* quarter, with *great* guidance.

Nice spin job.

Defending this article is useless but the fact that you would attempt to makes me realize that any further communication is fruitless….

For some odd reason, writers always have a need to bash Intel. Your statement that everything is baked into the numbers is wrong. The bottom line is that nothing is ever good enough. This stock was substantially oversold going into reporting — it was$23-$24 in early June — and given the mood, it is not unreasonable to dump positions until the reports come out. Sing your tired song, but the institutional investors will start moving back into Intel and over the next six months the stock will be at $25-$26.

You can actually read the entire earnings call transcript here:

http://seekingalpha.com/article/85134-intel-q2-2008-earnings-call-transcript?source=intel

Whoa, .6% margin decrease?

And Intel should suffer?

C’mon, give us a friggin break here!

Jon,
It is a little bit pitiful that you try to defend this article. It sounds like you did not even read the earnings announcement or listen to the conference call. You even imply that desktop margins are higher than notebook margins which is ludicrous. You mention Centrino as if it were a desktop solution when it is obviously a notebook platform. Evereything you say is obviously wrong.

Atom is not envisioned as a low margin chip. It is less expensive but the die size is so small that the margins will be fine. Intel has been very clear about that.

Intel is not pursuing any kind of high volume, low margin deal. Why would they…? They have virtually no competition. You are right, they are pursuing higher volumes but not lower margins (at least in microprocessors). Remember, there margins improved substantially from Q1 and are forecast to increase substantially again in both Q3 and Q4.

I never said margins were not very important, I said that total earnings were more important. This is not relevant to Intel but the business world is littered with the corpses of companies that tried to keep their margins too high….

Give it up, this article is indefensible. There are just too many out and out errors and factual mis-statements. If I were you, I would try to rescind it.

From Jon Fortt: I never suggest that desktop margins are higher. You’re making that up. Listen to the earnings call. Talking about the analyst meeting, Intel says:

“The ramp of Atom is encompassed in a 58 percent gross margin in Q3 and what I expect to be a higher gross margin in Q4. My view of Atom hasn’t changed from what I showed at the analyst meeting. If you recall, I was showing the Atom platform, I used end of 2009 as a comparison point because at that point we had ramped Atom volume, we had ramped quad-core volume to be a fairly significant percent of the total. And what I showed you at the time was that inclusive of the chipset, so the CPU plus the chipset, I expected the Atom platform to be about 10 product margin points lower than the mainstream of the product line, which was dual-core, and quad-core to be about 10 product margin points higher than that.” More: “At this point in time we do not see it replacing Celeron. If you look at the products that are being built around Atom, the netbook products, they are all lower priced, lower featured, smaller screen size notebooks aimed at first-time buyers or the second, third or fourth machine in a household. And I don’t see it cannibalizing, at least in terms of current sales out. And I think we really have hit on a new product category here. Over time, we’re still sorting out the brand activity in our mainstream notebooks. It’s clearly Centrino and Core is where the thrust is going to be. And we will sort out and ultimately talk about where Pentium-based notebooks and Celeron-based notebooks live as these sort themselves out. …”

Over time, they expect Atom to have healthy margins as costs come down. But in the near-term, Atom is still ramping and it’s going into cheaper, less feature-rich products, so the margins aren’t so much there. In fact, Intel said it is planning to break out Atom average selling prices separately so they don’t color Wall Street’s view of overall ASPs. You’re right about the die size, but until volumes ramp, that doesn’t count for much.

One more word on margins: Intel itself guided to a 56 percent margin for the quarter, and missed that number. So while its overall numbers are good, you should expect Wall Street to fixate on that a bit. Several analysts had put out reports before the announcement saying they expected gross margins to actually come in a little higher than Intel’s guidance, so they’re sure to have been disappointed. Again, I’m not dissing Intel, just looking at possible reasons why the stock didn’t get more of a bump after hours from some good overall numbers.

“It’s not powerful enough for a great experience editing photos or viewing online video – but Intel designed it as a cheap way to get more people connected to the PC-based Internet.”

Correction — it is powerful enough to view photos or video, not powerful enough to edit/create/encode video. The difference between consumption and production. It is pleanty to view typical video for the apps it is intended for.

From Jon Fortt: Actually Intel said on the call today that Atom isn’t great for editing photos or viewing a lot of online video.

“In this case, the upgrade from Atom is the Centrino 2 platform, which the Intel unveiled on Monday. Centrino 2, a combination of a processor, chipset and wireless functions working together, is Intel’s mobile tour de force.”

Correction — Centrino 2 is the follow-on for the Centrino mobile platform developed and marketed (to great success) in 2003. Atom is a processor not a platform.

From Jon Fortt: I never said Atom was a platform (though there is a chipset to go with it, so really it is, and was referred to as such on the call).

“Executives had just better hope that in this Yaris economy, there are still enough laptop buyers out there with Lexus tastes.”
Correction – many variations of Centrino exists, including the lower costs midrange laptops that does not require the ‘lexus’ taste.

From Jon Fortt: Any Centrino 2 laptop is going to have margins higher than the stuff that’s dragging down Intel’s margins overall, so my point stands.

“Intel, being the biggest manufacturer of computer brains on the planet, typically commands a hefty premium for its wares, but this quarter it had to work a bit harder for the money. ”
Correction — Intel enjoys the best architecture on the leading edge process, they have no competition in the high end, and high end fetches this premium. Intel also provides cost effective solutions in the low end as well, in fact… intel’s low end Quad is faster than AMD’s fastest bin quad and comes 20-30 bucks cheaper.

From Jon Fortt: Intel commands a premium over its cost, which is low because of its size and expertise in process.

http://www.newegg.com/Product/Product.aspx?Item=N82E16819115018

http://www.newegg.com/Product/Product.aspx?Item=N82E16819103273

This article should not have been written, it is loaded with inaccuracies.

This article is absolute drivel. Q2 margins were better than Q1, Intel forecasted 58% margins for Q3 and higher still for Q4 yet you say that margins were bad and not coming back. If you are going to write this stupid stuff, try and get some of the facts straight.

By the way, what is really important is total earnings, not margin. Sacrificing a little margin % to gain more margin dollars is a smart thing to do. Most financial journalists don’t seem to realize that.

It is really irritating, as an Intel shareholder, to see a great quarter mangled and down because of ignorant journalists.

Last, but not least, try checking the margins of any non-software company in almost any industry and see if you can find any that are even close to Intel’s.

From Jon Fortt: Intel also said they’re going to start breaking out ASPs for Atom so that Wall Street doesn’t freak out. The reason: This high-volume, low-cost strategy is going to negatively impact prices for a bit. That’s what I meant when I said the margins aren’t coming back.

You’re wrong that margin doesn’t matter. Healthy margins basically mean that a company doesn’t have to work as hard to get the profit levels, and they suggest a high level of management discipline. If a company’s margins decline over time, even if revenues and profits are rising, there’s reason to question the company’s health. This isn’t a matter of Intel intentionally sacrificing margin. It’s part of a macro trend. When the same thing happened in desktops, Intel came up with Centrino. The question is whether they’ll be able to reprise that kind of success.

Finally, yes, Intel’s margins are great. Their market share is also great. But as you know as an investor, that’s already baked into the numbers.