By: Richard Cownie (tich.delete@this.pobox.com), February 4, 2013 12:17 pm
Room: Moderated Discussions
Doug S (foo.delete@this.bar.bar) on February 4, 2013 11:08 am wrote:
> Your comparison seems to assume Intel switching from their current business to a foundry business.
It's pointing out that the difference between TSMC's 47% gross margin, and Intel's
58% gross margin, is not a small difference, but a very big difference which explains almost all of Intel's profitability.
> Unless they spun off the x86 design side like AMD did, that's not going to happen. The PC business
> is shrinking, but it will be around for a long time. At any rate, the shrinkage is all on the client
> side, unless ARM servers make inroads Intel's server revenue will continue to grow.
That is true. The x86 client business appears to be shrinking quite rapidly,
the server business is growing fast (but not quite fast enough to compensate
for the shrinkage of the larger x86 client business).
> Intel's foundry business is in addition to their current business, which if it becomes large might hurt
> their overall gross margin but the company as a whole would make more money. If the revenue top line is
> growing and profit is growing, who cares about margin shrinkage
Wall St, for one. And it also may be challenging in Intel's internal decision-making:
consider why it might be that Intel already had a healthy ARM-based business with
StrongARM/XScale, but chose to sell it in 2006. It's always hard for managers of a lower-margin business unit to justify investments and wafer starts when there are
are high-margin business units in the same organization competing for the same
resources.
> if the reason for it is entering another
> profitable line of business? If they require the same margins they make now before entering another business,
> they'll never do so because they'll never get lucky enough to be handed another monopoly.
Indeed. But once-dominant companies tend to have great difficulty getting back
into the fray and changing their business model when their dominance fades.
DEC died; IBM had a painful transition; Microsoft is hurting right now.
> Intel's problem is the coming 450mm transition. If they want to have anything like the
> number of f
abs they do now, post-450mm, they are going to need to double their chip production
> (measured in sq mm) and that certainly isn't going to happen with a shrinking PC market,
> even if they succeed in grabbing some of the growth in mobile for themselves.
Yes. They're planning huge fab investments, while their core business is shrinking.
That looks uncomfortable.
> Your comparison seems to assume Intel switching from their current business to a foundry business.
It's pointing out that the difference between TSMC's 47% gross margin, and Intel's
58% gross margin, is not a small difference, but a very big difference which explains almost all of Intel's profitability.
> Unless they spun off the x86 design side like AMD did, that's not going to happen. The PC business
> is shrinking, but it will be around for a long time. At any rate, the shrinkage is all on the client
> side, unless ARM servers make inroads Intel's server revenue will continue to grow.
That is true. The x86 client business appears to be shrinking quite rapidly,
the server business is growing fast (but not quite fast enough to compensate
for the shrinkage of the larger x86 client business).
> Intel's foundry business is in addition to their current business, which if it becomes large might hurt
> their overall gross margin but the company as a whole would make more money. If the revenue top line is
> growing and profit is growing, who cares about margin shrinkage
Wall St, for one. And it also may be challenging in Intel's internal decision-making:
consider why it might be that Intel already had a healthy ARM-based business with
StrongARM/XScale, but chose to sell it in 2006. It's always hard for managers of a lower-margin business unit to justify investments and wafer starts when there are
are high-margin business units in the same organization competing for the same
resources.
> if the reason for it is entering another
> profitable line of business? If they require the same margins they make now before entering another business,
> they'll never do so because they'll never get lucky enough to be handed another monopoly.
Indeed. But once-dominant companies tend to have great difficulty getting back
into the fray and changing their business model when their dominance fades.
DEC died; IBM had a painful transition; Microsoft is hurting right now.
> Intel's problem is the coming 450mm transition. If they want to have anything like the
> number of f
abs they do now, post-450mm, they are going to need to double their chip production
> (measured in sq mm) and that certainly isn't going to happen with a shrinking PC market,
> even if they succeed in grabbing some of the growth in mobile for themselves.
Yes. They're planning huge fab investments, while their core business is shrinking.
That looks uncomfortable.