Intel enters wearables:"The Intel Enigma"

[oobydoobydoo]

http://www.mondaynote.com/2014/12/14/the-intel-enigma/




Makes some good points, I definitely agree that Intel is looking for its "next big thing". Not sure why Intel has decided to go into wearables but BK's wife sounds like as good a reason as any other.

 

[witeken]

Not sure if I should continue reading after just a few paragraphs...

He is mislead by Intel's mobile revenue loss, he doesn't know the real contra-revenue spending (which I've calculated was forecasted to be $20/tablet, not 50), and nor does he know why Intel is doing contra-revenue or why Intel is merging MCG with PCCG.

Then he goes on and says that apparently Intel can't find other ways to gain revenue so they're in a desperate quest for the next big thing. Intel is simply investing in important areas of compute: if it computes, it does it best with Intel.

I won't waste much more time reading this FUD article. Not sure why that person wants to spread so much hate. I like Intel, for example, but that doesn't mean I hate AMD.

(I share this person's opinion.)

 

[AnandThenMan]

Article is spot on, Intel simply cannot compete in the ultra mobile market because the margins are way too low.

 

[ShintaiDK]

Article is spot on, Intel simply cannot compete in the ultra mobile market because the margins are way too low.

Did you check the price on wearables? Its smartphones all over. That means 60% margins on CPUs.

 

[AnandThenMan]

Sure about that?

Yep.

 

[witeken]

Article is spot on, Intel simply cannot compete in the ultra mobile market because the margins are way too low.

By the same logic:

Qualcomm simply cannot compete in the ultra mobile market because the margins are way too low.

Or:

MediaTek simply cannot compete in the ultra mobile market because the margins are way too low.

But this is incorrect. The margins are very likely healthy. For example although Intel's Atom servers cost a lot less, Atom actually has a higher margin per wafer than Xeon Core.

Edit:
Take SoFIA for example. It has a die size of less than 30mm². And that SoC is built on 28nm. At 14nm, it will be on the order of 20mm² or so for the quadcore 4G version.

Source:

 

[AnandThenMan]

Margins that others can tolerate are not margins Intel can tolerate. And the Atom server space has nothing to do with what we are talking about.

 

[Arachnotronic]

Margins that others can tolerate are not margins Intel can tolerate. And the Atom server space has nothing to do with what we are talking about.

MediaTek does ~50% gross margin and ~20%+ op margin in its chip business. The margins are there for those who have the right products and appropriate scale.

Don't confuse average selling price with margin. If I sell a product for $1 but it cost me $0.40 to make it, then my margins are better than selling a $1000 product that cost me $800 to make.

 

[witeken]

Margins that others can tolerate are not margins Intel can tolerate. And the Atom server space has nothing to do with what we are talking about.

Intel can, by definition of its business health, tolerate the lowest margins of any semiconductor company. Intel can give hundreds of millions of chips away and it wouldn't harm them! Since it isn't a very large business for Intel (yet), it certainly won't hurt the company. I suggest you do some research first before posting claims without source.

http://intelstudios.edgesuite.net/im/2014/live_im.html

MediaTek does ~50% gross margin and ~20%+ op margin in its chip business. The margins are there for those who have the right products and appropriate scale.

Don't confuse average selling price with margin. If I sell a product for $1 but it cost me $0.40 to make it, then my margins are better than selling a $1000 product that cost me $800 to make.

Exactly, with the only difference being that the first product needs a lot more volume to make up for the low price, which is true for the smartphone market.

 

[AnandThenMan]

Intel can, by definition of its business health, tolerate the lowest margins of any semiconductor company. Intel can give hundreds of millions of chips away and it wouldn't harm them! Since it isn't a very large business for Intel (yet), it certainly won't hurt the company. I suggest you do some research first before posting claims without source.

If by tolerate you mean subsidize then yes I agree with you. I don't agree with your statement, "wouldn't harm them!" explain that to investors. Losing billions is not exactly the definition of "no harm".

 

[witeken]

If by tolerate you mean subsidize then yes I agree with you. I don't agree with your statement, "wouldn't harm them!" explain that to investors. Losing billions is not exactly the definition of "no harm".

It wouldn't harm Intel in the sense that they could easily tolerate the costs (in theory, this won't happy in real life of course), which MediaTek probably couldn't.

 

[mrmt]

Margins that others can tolerate are not margins Intel can tolerate. And the Atom server space has nothing to do with what we are talking about.

What are the margins that Intel can tolerate and what are the margins that others can tolerate?

 

[Arachnotronic]

If by tolerate you mean subsidize then yes I agree with you. I don't agree with your statement, "wouldn't harm them!" explain that to investors. Losing billions is not exactly the definition of "no harm".

Um...that's because Intel has high fixed costs (R&D) and minimal revenue. The problem here isn't gross margin percentage per unit (well, it is right now due to contra-revenue, but once Intel's products aren't awful in this market, GMs should go up), it's the fact that the business isn't to scale.

If Intel invests $3 billion/year in R&D for mobile related SoCs/IP/software, and generates $8 billion in revenue at just 50% gross profit margin (well below corporate average), then this still adds to overall corporate profitability.

 

[frozentundra123456]

I do agree that intel seems to be throwing money at mobile and just hoping something sticks. The whole real sense or whatever project seems like another longshot gimmick. On the other hand, they can get away with this because they are so good at what they do best.

As to the article itself, it does seem like a hatchet job on intel. Several paragraphs of pointing out missed opportunities before even describing what the article was supposed to be about. Yes intel blew it with the iphone, but hindsight is always perfect, and it is easy for the author to say what intel should have done now that we know where the market went.

 

[dahorns]

I do agree that intel seems to be throwing money at mobile and just hoping something sticks. The whole real sense or whatever project seems like another longshot gimmick. On the other hand, they can get away with this because they are so good at what they do best.

As to the article itself, it does seem like a hatchet job on intel. Several paragraphs of pointing out missed opportunities before even describing what the article was supposed to be about. Yes intel blew it with the iphone, but hindsight is always perfect, and it is easy for the author to say what intel should have done now that we know where the market went.

Real Sense is a damn cool gimmick. I don't know that it will drive a ton of sales, but the technology has some good potential.

 

[witeken]

I do agree that intel seems to be throwing money at mobile and just hoping something sticks. The whole real sense or whatever project seems like another longshot gimmick. On the other hand, they can get away with this because they are so good at what they do best.

How is Intel throwing money at mobile? Their contra-revenue, which is about 800M and a bit more next year, is having a very great ROI: ~45M tablet mobile footprint. Intel is now being taken serious, which will make it easier to further grow in the market. Further, Atom is not only for tablets but is re-used for the data center, for smartphones, for IoT. Their partnerships with Rockship and Spreadtrum will help them grow in the smartphone market and Intel is in fact reducing the cost of developing tons of SKUs because that is now being done by Rockship with the Silvermont synthesizable core. Intel's execution is great, but it's a lot of work, but it will pay off within 5 years when they have a nice market share.

 

[AnandThenMan]

Intel can't make money in mobile because they are expecting to only make money on the processor. Other companies license from ARM, then have the processor fabricated where they want. Then they put that processor into a device and make money on that. ARM's revenues are tiny compared to Intel, but they can be profitable because all they do is license IP.

The only way I can see Intel making money in mobile is sell the entire device, which is what they are trying to do with this wearable tech.

 

[ShintaiDK]

Intel can't make money in mobile because they are expecting to only make money on the processor. Other companies license from ARM, then have the processor fabricated where they want. Then they put that processor into a device and make money on that. ARM's revenues are tiny compared to Intel, but they can be profitable because all they do is license IP.

The only way I can see Intel making money in mobile is sell the entire device, which is what they are trying to do with this wearable tech.

Are you saying anyone making custom ARM cores cant make money? Else you really need to change your statement about Intel.

 

[oobydoobydoo]

I do agree that intel seems to be throwing money at mobile and just hoping something sticks. The whole real sense or whatever project seems like another longshot gimmick. On the other hand, they can get away with this because they are so good at what they do best.

As to the article itself, it does seem like a hatchet job on intel. Several paragraphs of pointing out missed opportunities before even describing what the article was supposed to be about. Yes intel blew it with the iphone, but hindsight is always perfect, and it is easy for the author to say what intel should have done now that we know where the market went.

The article is pretty harsh, but I will disagree with you about the missed iPhone opportunity. That's not hindsight, any sane person could see that the iPhone *could* have be huge, even back in 2006. I mean apple was selling hundreds of millions of iPods in 2005 when Intel was shoving Prescott down Dell's throat. That is all otellini and that one decision certainly led to intels dismal market share and $8Billon loss. And what would it have cost Intel to give the iPhone SoC a shot? $50M? $150M? My point is: it was a tiny amount of risk for Intel to do that project and imagine if they had? They certainly would be in a better position in mobile than they are now.

If Intel does a good job on this wearable it could be a competitor to the Apple Watch, and IMHO you have to be silly not to realize how big the Apple watch will be. I have my doubts mainly because Intel and fashion are about as far apart as you can get.

 

[ShintaiDK]

I have my doubts mainly because Intel and fashion are about as far apart as you can get.

Intel isnt going to sell a watch. Just a SoC.

 

[Idontcare]

Did you check the price on wearables? Its smartphones all over. That means 60% margins on CPUs.

And Intel's margins are only set to improve as the foundries haven't figured out how to move below 28nm without increasing the costs of the chips whereas Intel has done exactly that.

The main thing is the cost curve has flipped upside down. We still get denser, higher performance and lower power chips but unfortunately they are more expensive. This is the first time in the history of the semiconductor business that we make something better and -- amazingly enough -- it's actually more expensive. That's the only downside.

Source

Everyone in ultramobile is going to have this problem except for Intel.

 

[AtenRa]

Everyone in ultramobile is going to have this problem except for Intel.

Is that why SoFIA is on 28nm TSMC for 2014-2015 and not Intel 22nm or 14 nm ??

 

[frozentundra123456]

The article is pretty harsh, but I will disagree with you about the missed iPhone opportunity. That's not hindsight, any sane person could see that the iPhone *could* have be huge, even back in 2006. I mean apple was selling hundreds of millions of iPods in 2005 when Intel was shoving Prescott down Dell's throat. That is all otellini and that one decision certainly led to intels dismal market share and $8Billon loss. And what would it have cost Intel to give the iPhone SoC a shot? $50M? $150M? My point is: it was a tiny amount of risk for Intel to do that project and imagine if they had? They certainly would be in a better position in mobile than they are now.

If Intel does a good job on this wearable it could be a competitor to the Apple Watch, and IMHO you have to be silly not to realize how big the Apple watch will be. I have my doubts mainly because Intel and fashion are about as far apart as you can get.

Well, all I am saying is, I have never run a large company, and I doubt either you or the author of that article has either. Top executives have to make probably hundreds of decisions every year about what products to pursue. It is inevitable that some of the decisions will be wrong. Sometimes they will have little effect in the long run and sometimes they will have a major effect. Unfortunately this was a major decision and it was the wrong one, and the company is still paying for it. In the climate of the time, though I can see how one might pass up this opportunity, since these chips would sell for a few dollars while server chips were selling for hundreds of dollars. It is easy to look back now with the knowledge of how popular smartphones have become and say what "any sane person" should have done. Not so easy at the time.

 

[frozentundra123456]

And Intel's margins are only set to improve as the foundries haven't figured out how to move below 28nm without increasing the costs of the chips whereas Intel has done exactly that.



Everyone in ultramobile is going to have this problem except for Intel.

Usually agree with you totally IDC, but I am not so sure about this one. Intel certainly has had more than expected problems with 14nm. With all the delays and extra costs, and delayed projects, it may take them a long time to make 14nm cheaper than 22nm if you include all the associated expenses. And all the problems could not have come at a worse time, since other foundaries have been stuck for a long time now, and intel could have had a better chance to break into the market if 14 nm was in common use now and performing as promised.

 

[AnandThenMan]

Intel is accustomed to margins around 65%. If they were to go with that for an ARM competitor that would mean each Intel mobile processor would be over $50. The Average ARM processor is $20. For Intel to get to $20 their margins would have to drop to near zero. And that's being very generous to Intel it assumes they can make a line of processors that will compete with the various ARM offerings.