Ask About Computers Blog

A financial analyst recently asked Intel’s CEO what certain aspects of the quarter would have been like had the world economy not cratered. Paul Otellini, with pain in his voice, shot back: “That’s just like asking Mrs. Lincoln what the play was like“.

The quarter was bad. How bad? It was “only the second time in 20 years that our fourth quarter revenues were below the third quarter”. However, in the year 2000, revenue came in less than one percent below Q3. This time it was 19% below! Q4 is supposed to be Intel’s strongest quarter.

Guidance last quarter was meaningless. So this time they didn’t even bother. The CFO did however say that they were internally modeling for revenue of $7 billion. That will give analysts something to chew on. However, it could be way off. There’s a thick blanket of fog before them.

The problem, or one of the problems, is that inventory in the supply chain is still contracting. Customers are still burning through what they had before the world turned upside down. When the inventory burns off and orders re-emerge is unclear. They hope Q1, but it could be later.

In the meantime, Intel plods on.

Netbooks and Atom

One of the few bright spots in the deepening recession has been netbooks, those little mini-notebooks. They are selling well, and Intel makes CPUs and chipsets for them. Atom sales were up 50% from the previous quarter and brought in $300 million.

Despite the strong sales of Atom, many analysts still don’t think Atom was a good idea, because they fear it will take away sales from Core 2 CPUs. To this, Intel replied that they think Atom is cannibalizing less than 20% of notebook CPUs. Management adduced surveys of buyers and said that they would go into detail at the analyst meeting.

Nehalem

The dual-processor server version of Nehalem, Intel’s latest CPU architecture, “began shipping for revenue in December”.

DP-server Nehalem is not to be confused with desktop Nehalem, which launched in November under the Core i7 moniker. The multi-processor server version of Nehalem ships in the second half. Of the DP-server version, the CEO quite truthfully said: “The performance of this product is stunning”.

While reviews of DP-server Nehalem have not appeared yet, below is a graph of a synthetic memory test that shows the kind of performance Nehalem is capable of. The illustratioin comes from TechReport. Please keep in mind, the Core i7 entries are desktop Nehalems, not server Nehalems, and this gives only a rough estimation of a single subsystem. It’s insightful nonetheless.

One analyst, a few days before the earnings call, surmised that certain announced price cuts to Intel server CPUs may have been the result of share gains by AMD with HP systems. “He contends the timing of the cuts is unique“.

Intel responded that the price cuts were driven by the impending launch of the new server parts and were not reactive. As new products are launched, prices are cut to help clear inventory. It’s “really the continuing process of us bringing in new technology from the top of the stack”.

Mainstream Nehalem parts for clients are also due out in the second half, including at least one SKU with graphics integrated on the CPU. The CFO was point-blank asked if such a part was still on for the “second half for this year”, and he said, yes.

Solid State Drives

One of the most exciting developments in computing these days is solid state drives. SSDs have the potential, among other things, to vastly increase system performance. While sales are not big enough to constitute a separate line item, management did say that Intel was “getting some good early market acceptance of our SSDs”.

32-nanometer Process Technology

Products like Nehalem and solid state drives tend to grab headlines. Intel, however, at heart is a manufacturing company. Their process technology is the foundation of their business. Intel primarily uses a 45-nanometer process technology but is working on 32nm and 22nm. The first products manufactured on 32nm will appear this year. However, the ramp will not occur until next year. Said the CFO: “We’ll have products in production this year, but in 2010 it’s really when that ramps”.

The Marianas Trench

One of the things management did on the earnings call was look out across the Marianas Trench to the other side and leave investors with a sense of what it might be like when things recover. No quick snapback is expected. Rather a process of growth from a bottom is envisioned. When that happens, Intel will be prepared.

Disclosure: long Intel

There’s a new CFO in town at Intel. The preceding CFO has moved on to become Chief Operating Officer. The former Assistant CFO is now the CFO. The new Chief Financial Officer received baptism by fire in an earnings conference Tuesday (Jan. 15, ‘08).

You would have thought it was a good quarter. Intel shipped a record number of server CPUs. Mobile CPUs were very strong, with processors and chipsets setting record units. And desktop quad-core shipments were up 40%. The CEO did mention that flash “had a challenging quarter” (p. 2).

Truth be told, stocks as a whole had begun to tank a couple of weeks earlier. In such an environment of fear, it needed but a spark to keep things tumbling.

Sales at Intel, while setting records, nevertheless failed to live up to expectations. Sales in turn affected profit. Also troubling, Intel guided below Wall Street’s expectations for the first quarter. People scanning the headlines read into these figures, the sky is falling.

Intel, however, insisted that as of yet it saw no signs of economic slowdown. Many at the time chose not to believe Intel management. Hindsight is 20/20, it is said. Today we know that Intel was not lying. Other IT companies, such as AMD and Seagate, have reported much the same thing. There’s no slowdown yet affecting these companies.

It was Intel’s NAND flash memory business that had caused the sales miss, not microprocessors or anything else. This is not to say that a worldwide recession won’t happen, and if it does Intel will be affected. NAND sales, however, are down worldwide because of oversupply.

Almost right off the bat, the Intel CFO and analysts were at odds over gross profit margins. For the record, Intel improved its gross margins. The CFO, however, refused to break down estimates for margins for upcoming Q2 through Q4 quarters. He gave an estimate for Q1 and for the year. He could see two points of good news affecting margins for 2008. Beyond that uncertainty.

The unknown variable was competition. Pricing is “a function of the strength of our product roadmap relative to competition” (p. 6).

AMD, after a slow start in ‘07, will continue to ramp Quad-core Opteron throughout 2008. If AMD can get the clocks up of Barcelona, it should give meaningful competition. Depending on the competitive environment, Intel’s gross margin “could go higher, it could go lower” (p. 6).

The analysts for their part didn’t want a breakdown of margins quarter by quarter. They just wanted to know what the forces of evil were weighing down gross margins. The CFO responded, “I don’t have negatives that are hidden in that margin forecast” (p. 5).

Why then is the estimate for the year so low, one analyst asked? The CFO: “It is the gross margin forecast”.

Stalemate. You could hear the frustration in the voices.

The analysts got the last laugh when many went home and “cut estimates and price targets on the stock” (Tech Trader Daily).

Read the transcript here.

The largest maker of computer graphics in the world is not NVIDIA or AMD. It’s Intel. Intel is the largest by virtue of its integrated graphics.

Because integrated graphics makes up most computer graphics, and Intel makes most integrated graphics, this makes Intel the largest supplier of graphics in the world. Bigger than NVIDIA, bigger than AMD.

To be sure, not all integrated graphics is made by Intel, but most of it is. To this end of tackling integrated graphics, NVIDIA has positioned its motherboard GPUs.

Integrated graphics is integrated into the chipset. The installed base is so large that the CEO of NVIDIA recently called it the “integrated graphics opportunity”.

The Largest Possible Market

In order to offer motherboard GPUs as a viable alternative to integrated graphics, NVIDIA had to lower costs. Integrated graphics occupies “the most sensitive price segments”.

In the past, NVIDIA seems to have been content to let ATI and Intel have much of the pie of volume graphics with its lower profit margins. All this may be changing.

By lowering costs, NVIDIA is targeting motherboard GPUs at “the largest possible market”.

Off to a Great Start

While integrated graphics have been around for some time, motherboard GPUs on the other hand are a recent development.

According to NVIDIA, motherboard GPUs for both AMD and Intel systems are “off to a great start”.

The First Of That Category

The motherboard GPU for Intel is the first of its kind.

NVIDIA initially introduced motherboard GPUs for AMD computers. Only after there were motherboard GPUs for AMD did NVIDIA introduce a motherboard GPU for Intel systems, the MCP73.

The motherboard GPU for Intel is the “first product of that category”.

Traction in the Intel Platform

Motherboard GPUs show promise. The mGPUs for AMD seem to be doing well.

The motherboard GPUs on the Intel side recently began “to see traction”.

Early Adoption Wonderful

The motherboard GPU for Intel was one of two classes of devices in which desire for the GPU recently exceeded NVIDIA’s ability to make. Demand outran supply.

Of the mGPU for Intel, the “early adoption has been wonderful”.

The other GPU that NVIDIA couldn’t make enough of, and still can’t, was the GeForce 8800 GT.

GeForce 8800 GT

In order to meet burgeoning demand, NVIDIA has expanded its foundry partners (DIGITIMES). Still these things take time, one would think.

In the days and weeks that followed the launch, places that sold graphics cards couldn’t keep the GeForce 8800 GT in stock.

There was some discussion as to why this was, with wild accusations of poor execution on NVIDIA’s part and that NVIDIA simply hadn’t made enough cards. There was also a rumor of component shortages for certain parts that went on the boards. Whatever the case may be, there were certainly not enough cards.

At the time of this writing, availability is still problematic, often as not.

NVIDIA will soon release another version of the GeForce 8800 GT, this time with less memory, the GeForce 8800 GT 256MB. The performance is almost as good under most circumstances, and the price a tad lower.

Just above the 8800 GT in the graphics-card hierarchy sits a new card set to be released December 11, the GeForce 8800 GTS with 512MB of memory, not to be confused with the card of the same name, GeForce 8800 GTS but with 640MB of memory. The new GTS is based on a new manufacturing technology of 65nm. The old GTS was built on 90nm technology. The new GTS card is also based on the same graphics chip as the 8800 GT, the G92.

NVIDIA F3Q08 (Qtr End 10/28/07) Earnings Call Transcript