
Intel Profits Fall as PC Slump Cuts Demand for Chips - eplanit
http://www.nytimes.com/2013/04/17/technology/intel-profits-fall-as-pc-slump-cuts-demand-for-chips.html?_r=0
======
cft
What's interesting is that as a power user I still cannot buy a good
ultrabook. I have a Samsung New Series 9 13" , that besides having major
quality problems (dead pixels, clicking fan noises), lacks several essential
features that I think many people would like to have:

-Retina display (at least like on iPad 3, 2048 x 1536 )

-Default fan-less thermal profile (i.e. no moving parts- it has fanless thermal profile, but it "forgets" it every time it's turned on)

Further down the road:

-Lid can be detached from the keyboard and used as a touchscreen tablet

~~~
kunai
Well, the Retina MacBook Pro very nearly fits your profile. The fans are
whisper-quiet, and the screen is beautiful.

I'm a ThinkPad die-hard, but somehow Lenovo is managing to destroy every last
bit of the legacy IBM worked so hard to build, so, sadly, I'm typing this from
a 13" MacBook Air.

I couldn't bring myself to buy a cheapened fiberglass budget laptop after my
lovely T60p.

~~~
whyenot
It's frustrating. I bought a MacBook Pro to replace my aging but much loved
Thinkpad X200, but it just doesn't measure up. The Thinkpad has a better
keyboard, is more easily expandable (at least memory/hd), and most importantly
for me, is built like a tank. The MBP already has a dented corner after an
unfortunate tumble, the Thinkpad has endured much, much worse.

All I want is a newer version of the X200, but Lenovo has moved off in a
different direction...

------
adventured
Intel is among the best at staying paranoid and investing into R&D. It makes
how they've been pinched by the rapid shift to smart phones + tablets all the
more amazing. A textbook example of how the best of companies can be caught
with their pants down.

They've always managed to respond impressively in the past to challenging
circumstances. Can they do it again? Their future depends on it.

~~~
seanmcdirmid
It wasn't really that though. They saw it coming, but the margins were so low
in this new field that they had to decide: stay in their high-margin but
slowly dying business or turn ship to compete with the inevitable but not very
profitable new order that was coming online.

It is quite easy to think that these big companies are not getting it, but
they really do. Intel was and is basically in a no win situation: they could
become like ARM and TSMC combined, but that wouldn't justify their valuation
at all. Their only hope was to come out with a new breakthrough high-margin
product, which might not simply exist right now (i.e. no big leaps to be had
for the next 5-10 years).

~~~
adventured
It's not ARM that Intel has to compete with per se, it's Qualcomm. They're the
new Intel.

People keep saying Intel stayed away due to the low margins. Well the market
doesn't have low margins. Qualcomm has a 30% net income margin; it's 50%
higher than Intel's today.

~~~
seanmcdirmid
> Qualcomm has a 30% net income margin; it's 50% higher than Intel's today.

Qualcomm doesn't run its own fabs as far as I know, these comparisons aren't
very meaningful.

Perhaps I mispoke using the word "margin:" Intel makes a lot of money as a
hardware company. Of course, they have to invest in their fabs, but their 15%
is on a much higher number than Qualcomm's 50%. So let's just think profit
instead ($1.2B vs. $2B).

~~~
adventured
Of course Intel is larger - QCOM was founded in 1985 - but Qualcomm is making
more money per dollar of sales they take in - 50% more in fact - and they're
growing radically faster than Intel.

And it's not chump change either, it's $6.6 billion in profit, which makes
them one of the most profitable tech companies on the planet. So it's not like
we're comparing $11b in profit versus $300m (ARM Holdings).

Their market cap is already larger than Intel's, and that's not going
backwards given QCOM's growth rate compared to Intel's contracting business.

Within three or four years at the current rate, Qualcom will be making more
money than Intel. That's dramatic to say the least.

The comparison is perfect. With $13 billion in cash now, and no real debt,
Qualcomm has begun talking about building their own fabs in the future. Which
is exactly what they will do by necessity. They already make more money than
TSMC. The notion of relying on TSMC long term would be absurd as Qualcomm
grows so much bigger than them. Given the numerous problems QCOM has already
had with TSMC, they have every incentive to soon abandon the fabless approach.

~~~
seanmcdirmid
As soon as Qualcom starts fabbing, their margins will go down; that's just the
nature of the hardware game. Microsoft, for example, was always very
profitable BECAUSE they stayed out of hardware. But its really a false
distinction: someone has to make hardware, and if you can do that profitably,
why not?

But you are right: QCOM is doing very well, they should eventually overtake
Intel in profits. They were very lucky to be in the cellphone business early
on. I'm not sure if their tablet business is very profitable though. Its not
like their are many successful tablets with snapdragons inside them.

~~~
fredliu
Any data to show whose tablet business is very profitable except Apple? or
more generally, is there any evidence showing that the "tablet market" is not
equivalent to the "iPad market" anymore?

~~~
seanmcdirmid
Most of the Google tablets seem to have Tegra's in them. Apple does their own
chips of course. I'm not sure anyone is very profitable with tablets yet
beyond Apple, but Asus might do OK.

------
programminggeek
Um, yep. If the average "PC" turns from a $500-750 laptop to a $200-500
tablet, Intel's going to lose a lot of business. It can't afford to live on
Atom chip margins.

~~~
vault_
That's assuming that Intel gets a decent cut of tablet market at all. Intel
making a decent low power CPU isn't going to make Arm go away, and Arm is only
going to work its way up the ladder from its current dominance in the embedded
and mobile space.

~~~
Taylorious
Arm exists because they went after a market Intel didn't care about. Intel was
slow to react to the shift in market, but they have reacted and they are
focused now. It is only a matter of time before Intel dominates the market.
Their latest Atom processors are already better than Arms. They may not get
the same cut from mobile processors, but they will have larger volume and
there is an emerging market in the hybrid tablet space. The Surface Pro is
considered a tablet but it still has an i5 in it. If Microsoft didn't screw it
up so much it could have been a huge success.

If any company can touch Intel fabrication process, then maybe I will start to
be worried about my Intel stock.

~~~
criley
> _Their latest Atom processors are already better than Arms._

Source? Every review I've seen says they still struggle to beat ARM on
power/performance/price.

I've absolutely not heard that their mobile chips are "better" by any margin.

~~~
Taylorious
[http://www.anandtech.com/show/6536/arm-vs-x86-the-real-
showd...](http://www.anandtech.com/show/6536/arm-vs-x86-the-real-showdown/14)

On the horizon: [http://www.anandtech.com/show/6790/intels-clover-trail-
dualc...](http://www.anandtech.com/show/6790/intels-clover-trail-dualcore-cpu-
and-graphics-unveiled-at-mwc-2013)

~~~
brigade
I really wish people would stop using Javascript benchmarks as a CPU
benchmark, especially across architectures. The amount by which they vary
between browsers _on the same device_ should make it obvious they aren't a
good general-purpose benchmark.

I mean, Kraken for one says my laptop is 60% faster than itself.

------
apapli
I'd appreciate some thoughts from more informed people than myself.

As I understand it: Intel didn't go into mobile devices because of lower
margins. Arm has now taken that market, and are killing it because they have
the volumes to make the lower margins palatable and not much competition.

Intel is now going into the mobile space now as they have decided they are
better off with low margins rather than no sales.

I could only imagine the total demand for mobile devices is a much bigger
market than it ever was for PCs so surely with Intels production capability
they can own this segment soon?

And with that being said, at the price intel stock is right now, we should be
buying them up by the bucket load?

~~~
adventured
The companies leveraging ARM are the ones really killing it.

eg Qualcomm - 100% profit growth in 24 months, to $6.1 billion ($6.6b in last
four quarters). They might be the size of Intel in three or four years at this
pace, and their market valuation has already passed them (the market is making
a clear bet there).

ARM itself is tiny by comparison. The real killing is being made by the
companies leveraging ARM's designs (QCOM / AAPL / Samsung etc).

I view it as akin to taking commodity energy products (which often have good
margins to begin with) and leveraging into the chemicals business with extreme
margins (everything from Tide to perfume to industrial chemicals).

~~~
corin_
A few errors in your numbers, it was $6.02 billion, and this was gross revenue
not profit - profit was $1.9 billion (still 91% growth in 24 months).

However, Qualcomm is more than ARM chips, so really those numbers are only
semi-relevant. If Apple started making their own chips, you wouldn't attribute
Apple's financial success to that alone.

Based on the fact that Qualcomm's profit is ~31.7% of it's revenue (in FY12Q4)
you could estimate that the profit from chip sales was closer to $1b/quarter
(based on annual chip sales revenue of $12.976 billion in 2012) and then the
question is how much of this is from ARM sales, which I don't have an answer
to.

As to their valuation passing Intel - again, this is based on more than chip
sales, and Intel's market share is still almost four times that of Qualcomm
currently (though this is likely to keep dropping, for sure).

Personally I'm still far more keen on ARM than the manufacturers. Having
factories that create chips from ARM's licenses is very different to turning
commodity products into goods like perfume - in the latter it is in part about
creativity and marketing (and probably patents, etc. etc.) in the former it is
much more about economy of scale, efficiency, etc.

What would it take to beat Qualcomm when it comes to producing ARM chips, and
can it be done - get the price lower, and yes it probably could be by someone
like Texas Instruments, Samsung, event Intel if they wanted to, potentially
AMD (who do want to but I think probably are too small to). How about beating
ARM themselves - all of a sudden you're not just trying to out-price the same
products, you have to come up with better architecture and get the world to
switch over. Whole different ball game.

All that said, Qualcomm are definitely in a great position, and are doing
really well. But from a spectator point of view I think ARM are much more
exciting, from an investor point of view I think that ARM's long-term future
has more potential, and short-term they are paying out dividends per share
greater than Qualcomm's total earning per share.

edit: Oh, and remember that even after the decline in profit, Intel's
quarterly net profit is still higher than Qualcomm's. For now.

Number sources:

Qualcomm FY12 Q4
[http://www.ft.com/cms/s/0/089f7c6e-6b23-11e2-8017-00144feab4...](http://www.ft.com/cms/s/0/089f7c6e-6b23-11e2-8017-00144feab49a.html#axzz2Qgbslvzk)

ARM FY12 Q4
[http://online.wsj.com/article/SB1000142405297020474090457719...](http://online.wsj.com/article/SB10001424052970204740904577194273282374432.html)

2012 chip sales
[https://en.wikipedia.org/wiki/Worldwide_Top_20_Semiconductor...](https://en.wikipedia.org/wiki/Worldwide_Top_20_Semiconductor_Sales_Leaders#Ranking_for_year_2012)

~~~
adventured
No, Qualcomm's profit was $6.1 billion in 2012. With $19 billion in sales. It
was $4.26 billion in profit for 2011 with nearly $15 billion in sales.

So the error is on your side.

Their trailing four quarters was closer to the $6.6 billion profit range (note
that I did not say in the 4th quarter, I said the trailing four quarters).

[http://finance.yahoo.com/q/is?s=QCOM+Income+Statement&an...](http://finance.yahoo.com/q/is?s=QCOM+Income+Statement&annual)

Here's Qualcomm's press release on fiscal 2012 confirming my numbers:

[http://files.shareholder.com/downloads/QCOM/992946673x618427...](http://files.shareholder.com/downloads/QCOM/992946673x6184273x612534/fad62ec7-8440-4f17-aad9-08e36edc1f60/Q4%2712%20ER%20Final.pdf)

$6.11 billion in net income, with $19.12 billion in sales.

~~~
corin_
Apologies, I misunderstood you. When you said $6.1billion you didn't specify
what period that was for, and due to the proximity to their Q4 revenue ($6.02
billion) I mistakenly jumped in and assumed you were talking about their last
quarter and had misread the numbers, when in actual fact you were correct we
were just talking about different things. Sorry!

Regardless, whether you look at the year or the quarter, the rest of my points
weren't related to my thinking you had made a mistake with your numbers.

~~~
apapli
Thanks for the clarification!

------
filereaper
"An improving economy should help, as well as new products like its Haswell
chips, a power-saving processor that supports touch-screen computing on
ultrabook computers, which are hybrids of notebooks and tablets."

I was expecting this, let's see how it holds up against ARM.

