Intel lost $929mn on mobile in Q1 '14

[jdubs03]

conference call transcript is up:

http://seekingalpha.com/article/2143733-intels-ceo-discusses-q1-2014-results-earnings-call-transcript?part=single

 

[Vesku]

Are they posting a lot of R&D expenses into their mobile line item? Not that post year 2000 regulators are very tough, but I think if they keep up that level of loss ($3 billion a year) there may be some questions asked about dumping.

I suppose their plan forecasts 14nm Atom as bringing that group at least closer to profitability.

 

[pw257008]

Are they posting a lot of R&D expenses into their mobile line item? Not that post year 2000 regulators are very tough, but I think if they keep up that level of loss ($3 billion for the year) there will be some preliminary questions of dumping.

Contra-revenue is how Intel tries to avoid having it called "dumping." Which is why it's funny that I've seen people on this forum call "contra-revenue" a scare word for the anti-Intel folks to use. It's Intel's own tactic.

And anything foundry-related seems to go in the "Other" category, though I don't know how they break down R&D on architecture. I'd assume they put that in whatever business group it applies to (that brings up an interesting question of where graphics development R&D is counted).

 

[Arachnotronic]

Contra-revenue is how Intel tries to avoid having it called "dumping." Which is why it's funny that I've seen people on this forum call "contra-revenue" a scare word for the anti-Intel folks to use. It's Intel's own tactic.

And anything foundry-related seems to go in the "Other" category, though I don't know how they break down R&D on architecture. I'd assume they put that in whatever business group it applies to (that brings up an interesting question of where graphics development R&D is counted).

It's probably because anybody who says "contra-revenue" is tantamount to dumping perhaps doesn't actually understand what it's being used for. Intel isn't buying market share, it's helping its products stand a fighting chance because the bill of materials required to support Bay Trail was so horribly out of whack with what the rest of the mobile guys have.

Intel still has a ways to go before I'd be comfortable calling them "there" in mobile, but I think Intel has proven that it *can* do it. It's just now a matter of execution and utilizing all of these great resources that it has.

 

[Arachnotronic]

And anything foundry-related seems to go in the "Other" category, though I don't know how they break down R&D on architecture. I'd assume they put that in whatever business group it applies to (that brings up an interesting question of where graphics development R&D is counted).

I agree. Great questions and ones I'd love to get clearer answers on.

 

[AtenRa]

Contra-Revenue is counted in the Net Revenue. Intel sold more chips than last Quarter but its Net Revenue fell almost to half of prior Quarter to only 156mil because they subtract the Contra-Revenue.
They were expecting to give away 1Bil for Contra-Revenue in 2014. If you count that to the losses, at the end of the year their Mobile segment could loose close to 5Bil.

Also, Operating Income Loss continues to raise and that is not looking good. 2014 will be the worst year of their Mobile Segment and things not looking any better for 2015.

One more thing, they sold 5mil chips in Q1 2014 and that means they need to sell 35mil more in 3 Quarters to reach their 40mil target. And that is with contra-Revenue, very difficult unless OEMs are making more from Intel than the others. But even if they will reach the 40mil units goal, the big question will be at what price ??
Lets wait and see how that will go this year.

 

[pw257008]

It's probably because anybody who says "contra-revenue" is tantamount to dumping perhaps doesn't actually understand what it's being used for. Intel isn't buying market share, it's helping its products stand a fighting chance because the bill of materials required to support Bay Trail was so horribly out of whack with what the rest of the mobile guys have.

Intel still has a ways to go before I'd be comfortable calling them "there" in mobile, but I think Intel has proven that it *can* do it. It's just now a matter of execution and utilizing all of these great resources that it has.

Well, I'd say that fundamentally, they are buying market share, because without the funds the BoM is too high, so they have to pay for part of that BoM to get their main product (the SoC) in the tablet (or to get it in more tablets, at more competitive price points). Now, I wouldn't call it dumping in the predatory sense, because predatory dumping usually involves using market power to drive down competitor margins. Intel shows no signs of trying to sell BT at a level where Qualcomm's profit margins (%-wise) erode.

And I've got no issue with Intel's contra-revenues. They make good tablet/netbook hybrids affordable. They're good for the consumer. They also will likely push Apple and Qualcomm and other ARM users to improve their products even more, again, good for the consumer, good for society (power ain't free, but we need to get things done), etc

 

[NTMBK]

Good. Maybe they will forget about mobile and focus more on reinventing the desktop.

Nah, they need to push into mobile to build up more volume and drive fab R&D. If we want our desktop CPUs to keep moving to shiny new process nodes, then we should hope that Intel gets a foothold in mobile. Traditional PC revenues aren't growing, but the costs of moving to a new process node certainly are.

 

[ShintaiDK]

Each CPU only cost a few $ to make. Everything else is essentially R&D+software support of various types. And Intel seems to ship 40M units now. If they ship 100M units for example the BOM cost will most likely be half already for the CPU part.

 

[Abwx]

Convenient for you to ignore that Intel said the majority of loss isn't from the selling price of the chips but from R&D costs of future products. Let's go check and see if you posted the same foolery when AMD was posting losses, shall we?

It takes a lot of money to break into new technology markets. But you know this.

But all that money had to go somewhere, i mean it was removed from Intel s bank accounts, investments in RD wich are not recouped by the sales margins are losses whatever the naming , it would be like slashing the Haswell line prices such that they couldnt even fund the past RD, that s a suicidal behaviour and if you had read my post closely you would have noticed, since you re talking of AMD, that i mentionned that Intel s current CEO has the same background as AMD s Dirk Meyer, that is both are enginers not real managers, and since before editing your post you mentionned AMD s mobile department as sold to Qualcomm i can only remind you that Intel did the same for a few peanuts as well....

 

[AtenRa]

And Intel seems to ship 40M units now.

They only managed to ship 5M in Q1 2014, lets wait and see if they can ship that 40M. They will have to double the shipments and sell close to 12M per quarter in order to reach that 40M target for 2014.

 

[theeedude]

Wow, $3B per year money pit. Yikes.
I think they are going to give it a year or two, and if it still doesn't take off, they'll start just fabbing chips for ARM SOC vendors as their mobile strategy.

 

[ShintaiDK]

Wow, $3B per year money pit. Yikes.
I think they are going to give it a year or two, and if it still doesn't take off, they'll start just fabbing chips for ARM SOC vendors as their mobile strategy.

ARM is not the future.

And they are willing to pay this amount for a long time ahead if needed.

 

[AtenRa]

ARM is not the future.

Definitely,

Tablets alone will reach PC shipments in 2014 and could even overcome them. And Smart Phones becoming more of a PC every year, they will seriously start to erode the PC sales when 20nm-16nm FinFets will start to flood the market next year.

http://www.gartner.com/newsroom/id/2610015

 

[Fjodor2001]

I actually wouldn't been so worried if this was a one time incident. But the thing is that Intel has been trying for years to get into the mobile arena. And every year they say that next year will be the year they succeed. And every year that fails to come true.

I wonder how long Intel will try until it gives up. At some point these constant losses in the mobile market segment will make the shareholders disappointed enough to demand an exit and re-focus on areas where Intel is actually profitable.

 

[AtenRa]

I actually wouldn't been so worried if this was a one time incident. But the thing is that Intel has been trying for years to get into the mobile arena. And every year they say that next year will be the year they succeed. And every year that fails to come true.

I wonder how long Intel will try until it gives up. At some point these constant losses in the mobile market segment will make the shareholders disappointed enough to demand an exit and re-focus on areas where Intel is actually profitable.

As far as they earn a profit from the PC segment they can afford to loose money trying to force them in to the mobile market. The problem will start to escalate if PC segment will start to decline more rapidly the next years.

 

[MisterMac]

Each CPU only cost a few $ to make. Everything else is essentially R&D+software support of various types. And Intel seems to ship 40M units now. If they ship 100M units for example the BOM cost will most likely be half already for the CPU part.

Curious - since you ignore others.


Do you think intel can ship 35 million mobile chips the next 3 quarters?
or worse, 55 million as their internal goal?


Yes, or no would be preferred.

 

[VirtualLarry]

As far as they earn a profit from the PC segment they can afford to loose money trying to force them in to the mobile market. The problem will start to escalate if PC segment will start to decline more rapidly the next years.

Which will leave them with what? Foundry customers? (Assuming that the PC market declines severely, and Intel fails to fully break into mobile.) They'll need volume to keep their fabs operating.

 

[mrmt]

Do you think intel can ship 35 million mobile chips the next 3 quarters?
or worse, 55 million as their internal goal?

I do. In fact, this is the first time I see a revenue contraction as a good sign.

 

[NTMBK]

Which will leave them with what? Foundry customers? (Assuming that the PC market declines severely, and Intel fails to fully break into mobile.) They'll need volume to keep their fabs operating.

If they don't manage to break into mobile, my personal speculation is that they would look into splitting Intel into two independent companies- merchant foundry and a fabless processor designer.

Of course there is still the potential that some new, out-of-nowhere computing phenomenon will hit, and Intel would be able to ride that wave and fill their fabs that way. There's a reason why they're talking up the Internet Of Things.

 

[StrangerGuy]

You think that as a corporation you should focus on a shrinking market, rather than a growing market?

Not sure if you're serious or just joking and saying that you want faster chips for desktop because you're an enthusiast and couldn't care less about a company's long term viability.

Yeah sure, keep throwing ever more powerful chips at a market without a mass consumer killer app using up the processing power...As if upgrade cycles for the past few years aren't long enough to hurt already.

Apple and Google were smart enough back then to realize bulk of the profits will eventually come from selling software and services than commodity hardware.

 

[ShintaiDK]

Curious - since you ignore others.


Do you think intel can ship 35 million mobile chips the next 3 quarters?
or worse, 55 million as their internal goal?


Yes, or no would be preferred.

My ignore list is rather large for a reason with all these influencer, advocacy, focus group and so on programs. Plus the usual crowd.

40 million? Yes.

 

[blackened23]

edit: nvm

 

[witeken]

Curious - since you ignore others.


Do you think intel can ship 35 million mobile chips the next 3 quarters?
or worse, 55 million as their internal goal?


Yes, or no would be preferred.

According to BK, those 5M chips put them "squarely on track" for their 40M goal.

 

[witeken]

Wow, $3B per year money pit. Yikes.
I think they are going to give it a year or two, and if it still doesn't take off, they'll start just fabbing chips for ARM SOC vendors as their mobile strategy.

It will take off. If you need some reasons why it will, I wrote this post yesterday.


This is one of the comments about their long-term goal in the mobile market:

And let me just comment on the question about the long-term profitability. It sounds basic, but it really stems from our manufacturing leadership. If we're two years ahead of the rest of the industry, and extending it gives us the ability that, as we target our products into the right space from a power standpoint, we will have power advantage or performance advantage and a cost advantage.

That really is our strategy playing out. You're seeing the first products hitting that theme over the course of this year and into early next year. Bay Trail is a really good product. For the high end of the market, you'll see products coming into the market that are more targeted at the mid-range and lower end of the market next year. But that's how the strategy plays out.

I'd say for 2015, I would expect to see reduction in the loss. Not profitability, but a reduction in the loss will feel pretty good when we get there and then we'll keep driving towards the long-term profitability goal.