TSMC 16nm in production, 10nm still on schedule (2017). Intel IDF Shenzhen

[Snafuh]

Of course you spend money on developing and improving your product. But giving money with the product is something different. "10$ for a chip and 20$ cash-back". We also have laws against dumping although it's just an "investment".

 

[witeken]

people don't think it's fair to subsidize

I agree. But that's why Intel does not subsidize any products. They pay the bill of materials overhead from not having designed Bay Trail for the low-end.

They could have done no contra-revenue, but then you'd only have seen BT in the high-end. Intel wanted to gain volume (40M) so they decided to make low-end SKUs for the low-end, but making BT a low-end platform isn't done as easy as feature creep, so they decided to pay the BOM overhead themselves.

Maybe you want to call that subsidizing, but that's misleading. It's simply brute-force fixing their BOM disadvantage to gain momentum and a footprint faster than otherwise, just like they do with the non-recurring engineering.

uncompetitive products.

Bay Trail was designed for the high-end. You can say many things, but not that Bay Trail is uncompetitive in the low-end where the contra-revenue was meant for.

Without contra-revenue Intels mobile products could not succeed on a free market with big competition.

Nonsense. We'll see how SoFIA goes on 28nm and then 14nm.

Intel uses it's market power and money to get into the market.

Money? Yes. Market power? Not sure what you mean with that, but I guess that applies more to Qualcomm.

gift-wrapping your product in money is not how a success story should be written.

Agreed, but that's not what Intel is doing.

But it has been discussed over and over again here.

Because people don't bother to read about how contra-revenue works and where it stands for. People don't even want to understand: "It isn't subsidizing? Then it can't be contra-revenue, since Intel is evil." People have decided in advance that contra-revenue is bad, and don't want to hear otherwise, they don't want to change their opinion even though it's been shown many times that they're false.

 

[kimmel]

Of course you spend money on developing and improving your product. But giving money with the product is something different. "10$ for a chip and 20$ cash-back". We also have laws against dumping although it's just an "investment".

Still willfully ignorant. In fact spending money before you see a return on that investment is the only way you'll have new entrants break into any market that has had considerable previous investment.

You want to accuse Google of anti-competitive behavior since they have started spending money to lay fiber in the ground before collecting subscription fees? How dare they report a loss in the short term while planning to make money later!

 

[witeken]

Of course you spend money on developing and improving your product. But giving money with the product is something different. "10$ for a chip and 20$ cash-back". We also have laws against dumping although it's just an "investment".

From the Q1'14 earnings call:

Stacy J. Smith - EVP and CFO
But what we're doing is we're taking Bay Trail, which is a product really designed for the PC market, and we made the decision to take it broadly across different segments of the tablet market this year.

It brings along with it, at least over the course of 2014, a higher bill of materials. And that's independent from the SOC cost. It's the power management subsystem, it's the motherboard that it goes on, it's the memory solution, those kinds of things. And so, we're providing some contra revenue to offset that bill of material delta over the course of 2014.

Now, as we said, we're doing value engineering with our customers and our partners. And so we're bringing down that bill of material over the course of 2014 independent of any changes to our SOC.

I'll pause there and actually let Brian if he wants to come in over on the top on any of the technology.

Brian M. Krzanich - CEO
I think Stacy's absolutely got it right. We have a series of improvements. They have already started to kick-in in some cases around our power management systems, the number of layers in our motherboards, the memory system integration. All of those things we've worked on and actually have started to see the advantages already in our costs.

We'll have significant unit growth in tablets. But remember that contra revenue isn't just a gross margin impact; it's actually a subtraction from revenue. And so that will mute the revenue growth for the segment because you have that negative as we get into the back half and ship more tablets.

http://seekingalpha.com/article/214...-results-earnings-call-transcript?part=single

And secondly, http://intelstudios.edgesuite.net/im/2013/archive/ss/archive.html around 25:00 or so you have the contra-revenue discussion.

 

[Snafuh]

Maybe you want to call that subsidizing, but that's misleading. It's simply brute-force fixing their BOM disadvantage to gain momentum and a footprint faster than otherwise, just like they do with the non-recurring engineering.

Maybe subsidizing is not the correct legal term but I think you understand what I mean. They give OEMs money to fix the BOM disadvantage.

Bay Trail was designed for the high-end. You can say many things, but not that Bay Trail is uncompetitive in the low-end where the contra-revenue was meant for.

Cost structure is part of being competitive. Bay Trails is a very good product performance wise but the high BOM makes is uncompetitive for non High-End products.

Nonsense. We'll see how SoFIA goes on 28nm and then 14nm.

SoFIA is a future product. I wasn't talking about the future because I can't predict it. I am sure SoFIA and Cherry Trail will help Intel to sell their mobile products without contra revenue.

Agreed, but that's not what Intel is doing.

They pay the BOM difference for you. 800M$ for 45M Chips. You even quote it yourself. Using an Intel chip is more expensive than using an ARM chip due to the motherboard etc. They pay these costs for the OEM. That's what I said. The OEM pays the normal price for a chip but get's money for the integration.

 

[krumme]

It goes to show how high the barrier to entry is for x86-enabled tablets and phones over that of the already developed and amortized R&D of arm-based tablets and phones.

That decade of R&D invested by ARM, Nokia, and Texas Instruments made it possible for low-cost (low BOM) products these days based on the same bones. Intel wasn't making the same investments, and it cost them roughly $4B to jumpstart that product development train.

For the people who want to argue that contra-revenue is not about R&D, I'm not saying it is chip R&D, it is product R&D. Intel pays down the BOM penalty that comes with x86 devices not having benefited from as long of an R&D pipeline history as ARM devices. So they are subsidizing the R&D pipeline of the OEMs.

For Intel it comes as a non-R&D reportable expense, but if they were vertically integrated to the tune of Samsung or Apple the contra-revenue itself would have most assuredly been reported as a product development (R&D) expense.

Give Mediatek 4b and they wouldnt even know how to use them within a year.
Contrarevenue makes perfectly good sense - good point - and i agree there is lots x86 product development. But we are past ct and ct+ that did run x86 so imo 4b shows the entry barriers goes far far beyond product development. Its not primarily product development idc. The problems is basically selling x86 to an ecosystem dominated by ss and apple. Thats no easy task and the numbers show imo.

 

[scannall]

. The problems is basically selling x86 to an ecosystem dominated by ss and apple. Thats no easy task and the numbers show imo.

Intel is unwilling to compete where the mobile market is. But there really isn't any good reason to move to x86, single supplier proprietary vendor. If Intel were to develop ARM chips for mobile, they could probably do a good job. But then they'd have to compete head to head with other ARM manufacturers.

If Intel were to succeed at grabbing up the mobile market, innovation would die again. Microsoft and Intel have sucked all the air out of the PC market, taking most of the profits there. OEM's are on razor thin margins gasping for breath. Why an OEM would willingly jump back into that pit in the mobile realm is beyond me.

 

[NTMBK]

From the Q1'14 earnings call:


http://seekingalpha.com/article/214...-results-earnings-call-transcript?part=single

And secondly, http://intelstudios.edgesuite.net/im/2013/archive/ss/archive.html around 25:00 or so you have the contra-revenue discussion.

If contra-revenue was indeed only offsetting the BoM difference, then the Bay Trail platform as a whole was a complete disaster. It had a BoM difference greater than the entire cost of the AP.

 

[ShintaiDK]

There are 2 things in it. BOM and market capture.

Price depends on volume. Higher volume the lower chip price. Since the R&D/Design cost is the same for a chip nomatter if it sells a handful or 100 million.

 

[Guest1]

If contra-revenue was indeed only offsetting the BoM difference, then the Bay Trail platform as a whole was a complete disaster. It had a BoM difference greater than the entire cost of the AP.

Baytrail was meant as a netbook chip. They repurposed it for use in tablets. That's why the BoM was so high to get baytrail into tablets.

 

[witeken]

Baytrail was meant as a netbook chip. They repurposed it for use in tablets. That's why the BoM was so high to get baytrail into tablets.

Bay Trail-M was for tablets, but high-end ones.

 

[Exophase]

Bay Trail-M was for tablets, but high-end ones.

The earnings call you just quoted said it's a product "really designed for the PC market." You can't have it both ways.

It's hard to really guess where design was deficient without even knowing specifically what the contra-revenue addressed. I know of one small product developer that was interested in evaluating BayTrail-M for a portable device, and what he was told was that while you could buy the SoC alone from distributors it didn't really make sense to not use Intel's reference board as a plugin solution. One of the reasons given was that it needed a PC BIOS to work.

 

[Erenhardt]

It goes to show how high the barrier to entry is for x86-enabled tablets and phones over that of the already developed and amortized R&D of arm-based tablets and phones.

That decade of R&D invested by ARM, Nokia, and Texas Instruments made it possible for low-cost (low BOM) products these days based on the same bones. Intel wasn't making the same investments, and it cost them roughly $4B to jumpstart that product development train.

For the people who want to argue that contra-revenue is not about R&D, I'm not saying it is chip R&D, it is product R&D. Intel pays down the BOM penalty that comes with x86 devices not having benefited from as long of an R&D pipeline history as ARM devices. So they are subsidizing the R&D pipeline of the OEMs.

For Intel it comes as a non-R&D reportable expense, but if they were vertically integrated to the tune of Samsung or Apple the contra-revenue itself would have most assuredly been reported as a product development (R&D) expense.

Hahaha... too funny. It is signature worthy posts.

It is like saying amd's losses are in fact all R&D.

Paying someone to use your lackluster crap is not R&D. One could say it is anti-competitive practices development, but c'mon.

Everyone is catching to intel which is good for the industry.

 

[krumme]

Hahaha... too funny. It is signature worthy posts.

It is like saying amd's losses are in fact all R&D.

.

4b loss is about 75% of amd entire revenue. Amd entire loss dwarfs compared to what Intel use on mobile.

But whatever i agree - amd havnt earned money ever except a few years so why not label the revenue to r&d. Lol.

Ot i hope tsmc comes back full force. We need cheaper and faster big fat gpu on 16nm and some new qcom soc stuff - its crap when there i no competition and the players always try to monopolise the market.

 

[Madpacket]

Let's see what happens when this contra revenue dries up. I think Intel tried their best but it's still not working for them as a whole.

 

[Fjodor2001]

When we're talking about the $4B figure, are people referring to Intel's mobile contra revenue specifically, or the loss for Intel's mobile division in general?

If it's the latter, note that it's $4.21B loss per year for 2014 (see this). The total loss of the mobile division summed up over the last few years is far greater. E.g. they lost another $3.15B in 2013 (see this). Just to clarify.

Huge numbers...

 

[witeken]

When we're talking about the $4B figure, are people referring to Intel's mobile contra revenue specifically, or the loss for Intel's mobile division in general?

If it's the latter, note that it's $4.21B loss per year for 2014 (see this). The total loss of the mobile division summed up over the last few years is far greater. E.g. they lost another $3.15B in 2013 (see this). Just to clarify.

Huge numbers...

I won't even react to these ignorant comments anymore. People don't want to understand that contra-revenue isn't bad or wrong, and that the $4B also includes shared investments like process and architecture development.

The numbers aren't as bad as they seem.

 

[Fjodor2001]

I won't even react to these ignorant comments anymore.

You just did...

People don't want to understand that contra-revenue isn't bad or wrong, and that the $4B also includes shared investments like process and architecture development.

The numbers aren't as bad as they seem.

No, it doesn't work like that. Shared R&D and investments are distributed among divisions and already accounted for through internal debiting.

The mobile division pays it's share of that, just like the other divisions. The net result after having accounted for that is the loss they are reporting.

 

[shady28]

Contra-revenue is literally nothing more than R&D.


...

When Intel reported mobile separately with a loss, it reported it as the cost to produce and market vs the revenue gained. That did not, in any way, include R&D. Neither do the other areas that they reported separately - there were line items for Data Center, PC Client, Internet of Things, software & services, Mobile, and R&D.

The R&D line item is for everything. Undoubtedly *some* R&D exists in the other categories, but by the same logic *some* non-R&D exists in the R&D line item as well.

We have no way of knowing how much of that R&D is dedicated to mobile, and how much goes to other areas like server / PC Client / Software & services etc. What can be certain is that if it were broken out, losses for mobile would be much much higher.

http://appleinsider.com/articles/15...losses-with-new-financial-reporting-structure



"The chip giant's mobile division has lost more than $7 billion since 2012, while the PC business has pulled in over $27 billion in the same span."

"With its troubled mobile chip unit hemorrhaging cash — thanks in part to Apple's domination of the smartphone and tablet markets — Intel this week announced that it would no longer report mobile earnings as a separate line item, instead choosing to lump them in with its money-minting PC business."


I emphasized the last line because the group-think seems to be that the money is in mobile. Facts state otherwise.

Basically Intel is now hiding losses in the mobile division. I don't see why, few are saying that investment in mobile is a bad idea. Certainly investors are interested to see how they are doing in mobile.

When big companies hide stuff like this, it's usually a very bad sign.

 

[krumme]

When Intel reported mobile separately with a loss, it reported it as the cost to produce and market vs the revenue gained. That did not, in any way, include R&D. Neither do the other areas that they reported separately - there were line items for Data Center, PC Client, Internet of Things, software & services, Mobile, and R&D.

The R&D line item is for everything. Undoubtedly *some* R&D exists in the other categories, but by the same logic *some* non-R&D exists in the R&D line item as well.

We have no way of knowing how much of that R&D is dedicated to mobile, and how much goes to other areas like server / PC Client / Software & services etc. What can be certain is that if it were broken out, losses for mobile would be much much higher.

http://appleinsider.com/articles/15...losses-with-new-financial-reporting-structure



"The chip giant's mobile division has lost more than $7 billion since 2012, while the PC business has pulled in over $27 billion in the same span."

"With its troubled mobile chip unit hemorrhaging cash — thanks in part to Apple's domination of the smartphone and tablet markets — Intel this week announced that it would no longer report mobile earnings as a separate line item, instead choosing to lump them in with its money-minting PC business."


I emphasized the last line because the group-think seems to be that the money is in mobile. Facts state otherwise.

Basically Intel is now hiding losses in the mobile division. I don't see why, few are saying that investment in mobile is a bad idea. Certainly investors are interested to see how they are doing in mobile.

When big companies hide stuff like this, it's usually a very bad sign.

This.

I have for the last years argued the investment in mobile is futile. I understand the counterargument and much good can be said about it.

What Intel is doing forward hiding real cost is so pathetic only a selfreferring long time monopoly can do the same. Only the former soviet union could do the same.

It goes to show the company have far greater problems than the financial loss. Its not worthy and a pain to watch for a company with such fine products and competences.

 

[witeken]

conspiracy theory

When big companies hide stuff like this, it's usually a very bad sign.

Maybe you should first educate yourself:

http://intelstudios.edgesuite.net/im/2013/live_im.html
http://intelstudios.edgesuite.net/im/2014/live_im.html

I, for one, have watched most of those videos, some even multiple times. I've read a lot on Seeking Alpha and followed all other news, I've been following their earnings calls since Q2'13 or so.

"The lines between the products are getting blurred. Phones are becoming phablets, tablets are becoming two-in-ones. The processors going into those two products are crossing lines," Intel spokesperson Chuck Mulloy told EE Times. "The [mobile] market isn't standing still waiting for us to catch up. It made sense…that we start treating these as a spectrum of products rather than point products."

This makes a lot more sense to me, as you can see with Atom and Core being used for both tablets and 2-in-1s.

Intel basically couldn't have been more clear about their contra-revenue and mobile group. In one of the videos from 2014, Stacy Smith literally says that the mobile R&D is a few hundred millions per quarter. About the $1B loss per quarter: "That's just how reporting works: every segment takes its share", he says (paraphrased).

This much more sensible hypothesis is confirmed by following graph, where mobile's R&D is $2B or so, with only a fraction (less than 50%) being exclusive mobile spending (that spending which would disappear if Intel's mobile group would disappear).

So $1B or so per year in exclusive phone and tablet R&D to get a foothold in those markets? Doesn't seem outrageous to me for a company like Intel.

Mulloy said that the merger will not change Intel's mobile road map, adding that modem teams will merge into Intel's Product Engineering Group. The China Product Engineering Group, which was previously separate from the company's main engineering group, will also fold into the new business.

http://www.eetimes.com/document.asp?doc_id=1324682

From AT:

The Mobile and Communications Group, which currently is responsible for tablet and smartphone platforms as well as RF transceivers, GPS, Wi-Fi, and Bluetooth will be broken up. The teams which focus on SoC development will join the Client Computing Group, and those which focus on RF technologies will form a new wireless R&D group.

According to Chuck Malloy, a spokesman for Intel, “The idea is to accelerate the implementation and create some efficiency so that we can move even faster.”

http://www.anandtech.com/show/8731/intel-plans-merger-of-mobile-and-pc-divisions

Educate yourself, and then apply Occam's Razor.

 

[shady28]

Maybe you should first educate yourself:

http://intelstudios.edgesuite.net/im/2013/live_im.html
http://intelstudios.edgesuite.net/im/2014/live_im.html

I, for one, have watched most of those videos, some even multiple times. I've read a lot on Seeking Alpha and followed all other news, I've been following their earnings calls since Q2'13 or so.


This makes a lot more sense to me, as you can see with Atom and Core being used for both tablets and 2-in-1s.

Intel basically couldn't have been more clear about their contra-revenue and mobile group. In one of the videos from 2014, Stacy Smith literally says that the mobile R&D is a few hundred millions per quarter. About the $1B loss per quarter: "That's just how reporting works: every segment takes its share", he says (paraphrased).

This much more sensible hypothesis is confirmed by following graph, where mobile's R&D is $2B or so, with only a fraction (less than 50%) being exclusive mobile spending (that spending which would disappear if Intel's mobile group would disappear).

So $1B or so per year in exclusive phone and tablet R&D to get a foothold in those markets? Doesn't seem outrageous to me for a company like Intel.



http://www.eetimes.com/document.asp?doc_id=1324682

From AT:


http://www.anandtech.com/show/8731/intel-plans-merger-of-mobile-and-pc-divisions

Educate yourself, and then apply Occam's Razor.

Really?

Occam's Razor says the simplest and most direct solution is usually the correct one.

It does not say be a blind lemming and believe everything from the mouth of executives.

Some facts, previously posted :

1 : Intel lost $7 Billion since 2012 in mobile.

2 : Intel made 37 Billion since 2012 in the PC Client market.

<There are a lot of obvious implications from the above two FACTS that seem to have escaped you>

3 : Intel is merging mobile with PC Client.

4 : We can no longer see what Intel is making / losing in the phone / tablet space as they are now one unit.

Conclusion : Intel is obscuring its lack of progress in tablets / phones by subsuming those losses into its success in PC Client / Desktop sales.

That's Occam's Razor for you.


Your thought process on the other hand, buys into the kool-aid that says tablets are laptops, laptops are phones, and desktops are tablets. Nice thinking....

 

[pTmdfx]

The R&D has nothing to do with contra-revenue, I certainly agree. That is why R&D is not factored into the revenue calculations... the revenue which was negative in the last quarter. They gave away more in contra-revenue than they were paid for their mobile parts.

It is quite funny because on the sheets AFAIK no tech companies would include research and development cost in the cost of final products. R&D is always listed as a separate "other" expenditure, and should always be about R&D. In the sense of absorption accounting, R&D is not a manufacturing cost of a final product, but an upfront one-time engineering cost before any final product is realised. In other words, the cost of final chips is just about the cost of running your factories to manufacture them. If contra revenue can affect the numbers of R&D on the sheets, I guess one should start to worry about the accounting policy of this company.

Anyway, how this is reflected on the sheets depends on how Intel gives away the chip. If they literally sold it at a lower price than the cost of final chips, it would be reflected in the operating income, since sales generated are less than the cost of final products. This seems to be the case. However, if Intel sells the chips at a high price, but gives rebate later, this should be a different story on the sheets.

 

[witeken]

3 : Intel is merging mobile with PC Client.

For clear and sensible reasons as told by BK and Mulloy. In addition, when Intel first announced this, they hadn't even decided yet if they would merge them in the quarterly report as well. It was first and foremost a decision for the benefit of their competitiveness.

4 : We can no longer see what Intel is making / losing in the phone / tablet space as they are now one unit.

You can't see many things. The annual Investor Meeting and Q&A are for those things. Before IM'14, you didn't know which portion of their MCG R&D was shared or unique, for instance. Or what they spent their capex on.

Conclusion : Intel is obscuring its lack of progress in tablets / phones by subsuming those losses into its success in PC Client / Desktop sales.

Obscuring its lack of progress :biggrin:. Brian Krzanich was really proud when he announced the 46M tablets in January, for your information. They were eager to tell you how much they had reduced the BOM delta. They were eager to tell you that they plan to reduce the mobile losses by $800M in 2015 (so now you know it should be $3.2B in 2015, and Stacy will probably review how their plan worked out at the IM'15, so the merger is utterly irrelevant). Contrary to Qualcomm or MediaTek, Eul showed their full roadmap for 2015 and (less complete for) 2016.

And finally, do you think that Intel gives one [something] about this $7B when they know (1) that the unique investment is closer to $3.5B (Cf. Infineon acquisition, share buyback, dividends) and (2) that they will get profitable eventually in the long-term? The only thing that might worry them a slight bit is ignorant people thinking they are wasting their cash. So your comment and complaints about their losses is short-sighted.

That's Occam's Razor for you.

Your conclusion does not hold up to reality. You're wrong.

If they wanted to obscure their mobile losses, why didn't they do it in 2012 or 2013, or even earlier in 2014 since there's been a TON of articles (e.g. Intel&#8217;s mobile division has lost an astonishing $2 billion so far this year, June) this year condemning their losses, but now suddenly in 2015? That does not make sense.

The most disturbing this is that many people seem to think that Intel paid $4B in contra-revenue this year D:. Spending a lot on R&D isn't bad, in my opinion. Intel knows how to spend R&D wisely.

 

[krumme]

Agree. Intels venture into mobile is one long r&d learning process at an estimated 3-4b cost a year. Lol.