Intel Q2 2014 financial result.

[meloz]

Given that TSMC is speeding up 7nm and not 10nm, Intel might indeed have got a winner.

Isn't that something of a perpetual theme at TSMC, though? Always talking about the next big thing on far-horizon while drawing attention away from their "yield constrained" migration to new node in immediate future.

Another source of strength for Intel is their prospering foundry business. They are swooping up all the customers who are willing to pay the premium for Intel's fabs. Panasonic being the recent big conquest.

 

[mrmt]

Isn't that something of a perpetual theme at TSMC, though? Always talking about the next big thing on far-horizon while drawing attention away from their "yield constrained" migration to new node in immediate future.

Another source of strength for Intel is their prospering foundry business. They are swooping up all the customers who are willing to pay the premium for Intel's fabs. Panasonic being the recent big conquest.

No next big thing needed another R&D centre in the middle of the development, but 7nm did. TSMC wouldn't do this if they were comfortable with their 10nm.

 

[witeken]

Does this mean that their "contra revenue" isn't dragging down their financials much, or has that started yet / been accounted for yet?

About 1 point gross margin.

 

[witeken]

A loss of 1.15 billion dollars for Mobile and Communications when the overall income is 3.8 billion dollars is definitely called "dragging the financials down".

btw contra revenue will not go away till Intel moves to a lower cost structure with SOFIA manufactured at TSMC 28nm. Intel is losing roughly $28 per baytrail chip. you cannot make up loss per chip by shipping more volume. :whiste:

http://www.fool.com/investing/gener...tel-corporations-true-mobile-breakeven-p.aspx

They don't need SoFIA. They are already reducing BOM of Bay Trail. They are expecting 0.5x the BOM cost by the end of the year. Cherry Trail won't need contra-revenue at all, as far as I know.

I don't think it's a bad choice to opt for a higher market share instead of no loss.

 

[witeken]

"Increasing marketshare"? Their mobile revenue is down 83% YoY.

Contra Revenue is calculated in the Mobile and Communication Group Revenue. Although they sold more than double the amount of BayTrail SoCs relatively to Q1 2014(10M units vs 5M), their M&C group revenue fell 67% Quarter to Quarter from 156M in Q1 2014 to just 51M on Q2 2014.

Also M&C Group made a bigger Income loss of 1,124B in Q2 2014 or 20% higher loss than 929M in Q1 2014 . So far M&C Group has lost 2,054B in the first half of 2014, not including Contra Revenue.

I don't have a source (yet), because I read it in a comment, but revenue for Atom is also in the PC Client Group. M&C only has the discrete XMM baseband and NFC chips.

 

[witeken]

So we have Daddy Warbucks Intel to thank for the supposed arrival of $100 Windows 8.1 / Intel tablets... in their gambit to destroy the Android ecosystem. What if it doesn't work? What if Android holds on, and Windows 8.1 fails to take hold (Metro / Modern UI... eww!)? Will Intel continue to take losses, excuse me, "contra revenue", forever?

IA runs Android nicely.

 

[AtenRa]

I don't have a source (yet), because I read it in a comment, but revenue for Atom is also in the PC Client Group. M&C only has the discrete XMM baseband and NFC chips.

That might be for the Desktop/Laptop ATOM parts, mobile ATOM BayTrail-T (Tablets) Revenue is calculated in the M&C Group.

Mobile and Communications Group: Delivering platforms designed for the tablet and smartphone market segments; and mobile communications
components such as baseband processors, radio frequency transceivers, Wi-Fi, Bluetooth*, global navigation satellite systems, and power
management chips.

 

[Abwx]

So we have Daddy Warbucks Intel to thank for the supposed arrival of $100 Windows 8.1 / Intel tablets... in their gambit to destroy the Android ecosystem. What if it doesn't work? What if Android holds on, and Windows 8.1 fails to take hold (Metro / Modern UI... eww!)? Will Intel continue to take losses, excuse me, "contra revenue", forever?

An answer based on a lot of unknown cant be reasonably accurate so i really dont know, we ll see in two or three years, otherwise W8.1 is not 100$ for OEMs , a student can already get five for 50$ each in a one or two year window, if i can say so, probably that big OEMs do pay half of this price at most, so the OS cost is not really the problem, it is rather the notion of "good enough" for the purpose and that thoses products lifecycle are quite short with shrinking prices, and this is unlikely to ever be compatible with intel s costs structure, margins are just too tiny.

 

[CHADBOGA]

They don't need SoFIA. They are already reducing BOM of Bay Trail. They are expecting 0.5x the BOM cost by the end of the year. Cherry Trail won't need contra-revenue at all, as far as I know.

I don't think that will be the case.

It won't be till Broxton and its variants at the earliest, before contra-revenue is no longer needed.

Intel missing the boat on the importance of mobile is costing them a fortune in the short term.

They are very fortunate to be so cashed up that they will likely get away with this in the longer term.

 

[ShintaiDK]

Windows 8.x and Windows Phone 8.x is free on all sub 9" devices. 0 licensing cost.

 

[witeken]

I don't think that will be the case.

It won't be till Broxton and its variants at the earliest, before contra-revenue is no longer needed.

Intel missing the boat on the importance of mobile is costing them a fortune in the short term.

They are very fortunate to be so cashed up that they will likely get away with this in the longer term.

It seems your comment is debunked by Stacy and Brian in the earnings call.

Stacy Rasgon - Sanford C. Bernstein & Co.
Guys, thanks for taking my questions. I had a first question on the tablets and the contra revenue. Presumably you’ve got tablets ramping into Q3 and into the back half but you’re not calling out contra revenues as a margin driver for Q3. Is this a function of the tablet volume or is this a function of contra revenues rolling off? I think they were supposed to start to decline as we go through the year. Any color you could give us on that would be helpful?

Brian M. Krzanich - CEO
So let me start with just kind of an overall, Stacy, discussion on the tablets and on and I’ll let our Stacy comment on the contra versus margin discussion. We are on schedule for our 40 million. We did 10 million in Q2, so we did roughly 5 million in the first quarter, 10 million in the second quarter. So you can kind of break out how the rest of the 40 million come in Q3 and Q4 with clearly Q4 being probably the bigger of the two quarters remaining. We did say that we would continue to drive down our cost and hence the contra revenue. We’re continuing to do that. Bay Trail adds to that capability. As we exit this year we said they were on schedule with SoFIA. SoFIA is a fully integrated part really designed for this segment. That allows us to move into '15 with a much, much better cost structure and really drive down the contra revenue to near 0 on those products. So, we are on schedule as far as we had stated through the year of what we’re doing on our cost reductions and driving down the contra. I’ll let Stacy comment on how contra is reported versus the margin.

Stacy J. Smith - EVP and CFO
Yes. So you’re getting into a little bit of I think a math issue here, Stacy. Let me walk you through it. First, we saw more or less a full point of margin in Q2 associated with our ramp of tablets. If you think about the volume curve that Brian just laid out, let’s just both take a precise number 40 million just to anchor. We did 15 in the first half that we did 10 in Q2. That says we have 25 to do in Q3 and Q4. Let’s say it’s 12.5 million per quarter. It’s not really that linear but just take that for the sake of argument. The change isn’t that great. So you’re really into a kind of change in gross margin dollars. It doesn’t add up to something that’s significant or else it would have been on my gross margin recon.

Stacy Rasgon - Sanford C. Bernstein & Co.
Got it. You’re close to the run rate anyways. I get it.

Stacy J. Smith - EVP and CFO
Yes, exactly. So you saw the big change in Q1 to Q2 where it was kind of a full point of gross margin impact. It was a little hidden – it’s on the recon but it’s a little hidden and the fact that we were up five points quarter-on-quarter.


From the CFO commentary:


Gross margin in the third quarter is expected to be 66%, plus or minus a couple points, up 1.5 points from the second quarter.

Gross Margin Reconciliation: Q2'14 to Q3'14 Outlook (64.5% to 66% +/- a couple points)

[note: point attributions are approximate]
• + 1.5 points: Lower platform* unit costs
• + 0.5 point: Higher platform* volume
• - 0.5 point: Lower platform* average selling prices

No contra-revenue mentioned.

 

[dahorns]

It seems your comment is debunked by Stacy and Brian in the earnings call.

I don't read his comments the same way you do. He is saying that contra-revenue is basically baked in at this point and won't be driving change from to current gross-margins. When they first started contra-revenue, it did pressure the previous margins. Now, its built into the overall margins and the additional ramping of tablet shipments is incremental (i.e., 12.5 mil vs 10 mil). Thus, it can't do much to affect margins.

I do believe they've previously said that Cherry-Trail, and I think even the newer SKUs of Bay Trail, will not require as much or any contra revenue.

 

[AtenRa]

It seems your comment is debunked by Stacy and Brian in the earnings call.

Stacy Rasgon - Sanford C. Bernstein & Co.
Guys, thanks for taking my questions. I had a first question on the tablets and the contra revenue. Presumably you’ve got tablets ramping into Q3 and into the back half but you’re not calling out contra revenues as a margin driver for Q3. Is this a function of the tablet volume or is this a function of contra revenues rolling off? I think they were supposed to start to decline as we go through the year. Any color you could give us on that would be helpful?

Brian M. Krzanich - CEO
So let me start with just kind of an overall, Stacy, discussion on the tablets and on and I’ll let our Stacy comment on the contra versus margin discussion. We are on schedule for our 40 million. We did 10 million in Q2, so we did roughly 5 million in the first quarter, 10 million in the second quarter. So you can kind of break out how the rest of the 40 million come in Q3 and Q4 with clearly Q4 being probably the bigger of the two quarters remaining. We did say that we would continue to drive down our cost and hence the contra revenue. We’re continuing to do that. Bay Trail adds to that capability. As we exit this year we said they were on schedule with SoFIA. SoFIA is a fully integrated part really designed for this segment. That allows us to move into '15 with a much, much better cost structure and really drive down the contra revenue to near 0 on those products. So, we are on schedule as far as we had stated through the year of what we’re doing on our cost reductions and driving down the contra. I’ll let Stacy comment on how contra is reported versus the margin.

Stacy J. Smith - EVP and CFO
Yes. So you’re getting into a little bit of I think a math issue here, Stacy. Let me walk you through it. First, we saw more or less a full point of margin in Q2 associated with our ramp of tablets. If you think about the volume curve that Brian just laid out, let’s just both take a precise number 40 million just to anchor. We did 15 in the first half that we did 10 in Q2. That says we have 25 to do in Q3 and Q4. Let’s say it’s 12.5 million per quarter. It’s not really that linear but just take that for the sake of argument. The change isn’t that great. So you’re really into a kind of change in gross margin dollars. It doesn’t add up to something that’s significant or else it would have been on my gross margin recon.

Stacy Rasgon - Sanford C. Bernstein & Co.
Got it. You’re close to the run rate anyways. I get it.

Stacy J. Smith - EVP and CFO
Yes, exactly. So you saw the big change in Q1 to Q2 where it was kind of a full point of gross margin impact. It was a little hidden – it’s on the recon but it’s a little hidden and the fact that we were up five points quarter-on-quarter.


From the CFO commentary:


Gross margin in the third quarter is expected to be 66%, plus or minus a couple points, up 1.5 points from the second quarter.

Gross Margin Reconciliation: Q2'14 to Q3'14 Outlook (64.5% to 66% +/- a couple points)

[note: point attributions are approximate]
• + 1.5 points: Lower platform* unit costs
• + 0.5 point: Higher platform* volume
• - 0.5 point: Lower platform* average selling prices

No contra-revenue mentioned.

The problem is, SoFIA is sub-par to Baytrail-T in performance for Tablets. You cannot say you are better in 2015 by offering sub-par products in order to stop the contra revenue.

Will Intel be able to sell 40M or more Tablets with CherryTrail without needing Contra Revenue in 2015 ?? thats the big question. And in my opinion, thats not going to happen.

 

[ninaholic37]

"That allows us to move into '15 with a much, much better cost structure and really drive down the contra revenue to near 0 on those products. So, we are on schedule as far as we had stated through the year of what we’re doing on our cost reductions and driving down the contra."

No contra-revenue mentioned.

Sounds like they did mention it, and that it will still exist. Brian sure seems to like turning a simple question into a long-winded, cryptic answer, which is normally what people do when they are trying to hide the truth / ignore the actual question.

 

[Homeles]

The problem is, SoFIA is sub-par to Baytrail-T in performance for Tablets. You cannot say you are better in 2015 by offering sub-par products in order to stop the contra revenue.

Will Intel be able to sell 40M or more Tablets with CherryTrail without needing Contra Revenue in 2015 ?? thats the big question. And in my opinion, thats not going to happen.

Cherry Trail should significantly improve Intel's competitive standing, in pretty much all metrics (price, power, CPU performance, GPU performance, etc.). Should be a cake walk, honestly, although it depends heavily on if they're actually able to have it available in the volumes necessary.

 

[witeken]

I don't read his comments the same way you do. He is saying that contra-revenue is basically baked in at this point and won't be driving change from to current gross-margins. When they first started contra-revenue, it did pressure the previous margins. Now, its built into the overall margins and the additional ramping of tablet shipments is incremental (i.e., 12.5 mil vs 10 mil). Thus, it can't do much to affect margins.

I do believe they've previously said that Cherry-Trail, and I think even the newer SKUs of Bay Trail, will not require as much or any contra revenue.

That makes sense. His explanation is quite confusing. But they do say that the contra-revenue will decline in the future.

The problem is, SoFIA is sub-par to Baytrail-T in performance for Tablets. You cannot say you are better in 2015 by offering sub-par products in order to stop the contra revenue.

Will Intel be able to sell 40M or more Tablets with CherryTrail without needing Contra Revenue in 2015 ?? thats the big question. And in my opinion, thats not going to happen.

Have you read some of his other answers? Although he says he doesn't know much about marketing, sometimes he gives more PR like answers than new information; he iterates things we already know like Llama Mountain etc. He gave SoFIA just as the best example of product that doesn't need contra-revenue.

About your second comment: do other SoCs like S800 series need contra-revenue? They are similar SoCs with similar die sizes and functionality. Cherry Trail launches a year after Bay Trail. I'd expect they used that time to bring BOM to Snapdragon levels.

 

[AtenRa]

Cherry Trail should significantly improve Intel's competitive standing, in pretty much all metrics (price, power, CPU performance, GPU performance, etc.). Should be a cake walk, honestly, although it depends heavily on if they're actually able to have it available in the volumes necessary.

I don't doubt that CherryTrail will be significantly improved in power and performance, but manufactured in a new 14nm more expensive process than a mature 22nm will not bring cost down, even if they were able to fix the platform cost and lower BOM. Intel will not be able to sell CheryTrail in the same cost they are selling BayTrail today with Contra Revenue. They will still need to invest in Contra Revenue for CheryTrail in 2015 as well. They might need little less this time around, but that is only if they will manage to sell all that volume again. Dont forget everyone knows what Intel did in 2014, so they are prepared this time.

 

[AtenRa]

Have you read some of his other answers? Although he says he doesn't know much about marketing, sometimes he gives more PR like answers than new information; he iterates things we already know like Llama Mountain etc. He gave SoFIA just as the best example of product that doesn't need contra-revenue.

It was only SoFIA he talked about, he could easily talk about CheryTrail as well but he didnt.

About your second comment: do other SoCs like S800 series need contra-revenue? They are similar SoCs with similar die sizes and functionality. Cherry Trail launches a year after Bay Trail. I'd expect they used that time to bring BOM to Snapdragon levels.

I dont believe Qualcomm sold its High-End SoCs at that low cost as Intel did with BayTrail in 2014. And they(Intel) did that only to gain market share (at a loss).

 

[Abwx]

Cherry Trail should significantly improve Intel's competitive standing, in pretty much all metrics (price, .

You mean they will dump even more $..??

Because they re already giving 70-80$ for whom is agreeing to be delivered a free chip....

 

[witeken]

70-80$? How do you come up with such an insane number?

He probably means that the silicon cost of Cherry Trail will be much less and probably the BOM will be fixed as well.

 

[Homeles]

You mean they will dump even more $..??

Because they re already giving 70-80$ for whom is agreeing to be delivered a free chip....

I've seen more accurate guesses come from Seronx and Charlie Demerjian...

 

[raghu78]

That makes sense. His explanation is quite confusing. But they do say that the contra-revenue will decline in the future.

Remember Intel says SOFIA will drive contra revenue to near 0. So even with SOFIA contra revenue is not 0. We don't know yet what it will be until we see Intel financials for Q1 2015. btw Baytrail-T built at Intel 22nm FINFET will move to an inferior TSMC 28nm planar HPM process. That affects perf and perf/watt and competitive positioning against the hordes of ARM competitors like Qualcomm, Mediatek and others.

About your second comment: do other SoCs like S800 series need contra-revenue? They are similar SoCs with similar die sizes and functionality. Cherry Trail launches a year after Bay Trail. I'd expect they used that time to bring BOM to Snapdragon levels.

No. you are wrong. Intel does not have baseband integration till SOFIA launches. Qualcomm is the king of integration. Their integrated modems are the best in the industry. To give you a clue as to how heavily integrated a Qualcomm SOC is have a look at the 20nm Qualcomm Snapdragon 810 or 28nm Qualcomm S800.

http://www.anandtech.com/show/7925/...bit-socs-with-lte-category-67-support-in-2015

http://www.qualcomm.com/snapdragon/processors/800

Cherrytrail will need a discrete modem chip like Intel XMM 7260 and that increases costs. So Intel Cherrytrail has no chance against Qualcomm 810 as cost is one of the major factors in the mobile SOC market.

http://www.intel.com/newsroom/kits/mobileworld/2014/pdfs/7260_factsheet.pdf

 

[Arachnotronic]

Remember Intel says SOFIA will drive contra revenue to near 0. So even with SOFIA contra revenue is not 0. We don't know yet what it will be until we see Intel financials for Q1 2015. btw Baytrail-T built at Intel 22nm FINFET will move to an inferior TSMC 28nm planar HPM process. That affects perf and perf/watt and competitive positioning against the hordes of ARM competitors like Qualcomm, Mediatek and others.



No. you are wrong. Intel does not have baseband integration till SOFIA launches. Qualcomm is the king of integration. Their integrated modems are the best in the industry. To give you a clue as to how heavily integrated a Qualcomm SOC is have a look at the 20nm Qualcomm Snapdragon 810 or 28nm Qualcomm S800.

http://www.anandtech.com/show/7925/...bit-socs-with-lte-category-67-support-in-2015

http://www.qualcomm.com/snapdragon/processors/800

Cherrytrail will need a discrete modem chip like Intel XMM 7260 and that increases costs. So Intel Cherrytrail has no chance against Qualcomm 810 as cost is one of the major factors in the mobile SOC market.

http://www.intel.com/newsroom/kits/mobileworld/2014/pdfs/7260_factsheet.pdf

Cherry Trail is aimed at tablets and most tablets are Wi-Fi. Comparing the S810 to Cherry Trail seems a bit...off.

 

[Homeles]

Cherrytrail will need a discrete modem chip like Intel XMM 7260 and that increases costs. So Intel Cherrytrail has no chance against Qualcomm 810 as cost is one of the major factors in the mobile SOC market.

Except Cherry Trail will be on a lower cost process. And there's the critical bit that Intel17 pointed out above... you really don't seem to be qualified to be making these statements.

 

[raghu78]

Except Cherry Trail will be on a lower cost process. And there's the critical bit that Intel17 pointed out above... you really don't seem to be qualified to be making these statements.

again wrong. TSMC 20nm has lower cost than Intel 14nm FINFET. In fact its Intel who is having bigger yield problems with 14nm FINFET than TSMC with 20nm planar.

https://markets.jpmorgan.com/research/email/-kjegkq4/GPS-1336259-0

page 4

"We estimate that TSMC’s cost structure at 28nm 20nm is 30% lower than Intel.While Intel may narrow this somewhat at 14nm, we expect the cost gap to widen again at 10nm."

With TSMC 16FF+ ramping to volume production early next year you can see for yourself a faceoff against TSMC and Intel product. Apple A9 vs Broadwell Core M. This one is gong to be a good contest especially since both are FINFET and at same 5w TDP. btw Cherrytrail will have to compete against S810 for high end tablet design wins.