What's Intel's Plan?

[Slobogob]

I think most of us are understanding his "point" just fine. His "point" though is just "why is Intel operating like a company that has competition"? Which is like asking why lower prices when there are a few people out there that like to spend more? The real answer is somewhere between "they know what they're doing and it is all part of the plan" and "they are clueless and just trying to do anything to keep AMD at bay". My money goes to the former.

It´s more like "they know what they have to do to keep AMD at bay".

And they are doing a good job at that.

 

[halbhh]

All companies have competition, but few try to gain just a tiny extra bit of share at a cost of a big chunk of profit.

Put another way, why is Intel doing a price war. We all know they are. Just, why?

That's the only question. It isn't something else.

 

[turpit]

All companies have competition, but few try to gain just a tiny extra bit of share at a cost of a big chunk of profit.

Put another way, why is Intel doing a price war. We all know they are. Just, why?

That's the only question. It isn't something else.

M$ anyone?

 

[NMDante]

All companies have competition, but few try to gain just a tiny extra bit of share at a cost of a big chunk of profit.

Put another way, why is Intel doing a price war. We all know they are. Just, why?

That's the only question. It isn't something else.

Okay, here's a theory.

Maybe Intel's 65nm process is not as expensive as it once was, so it can lower it's prices, forcing AMD, who's process isn't as mature or maybe even cheaper, to eat more of a loss than Intel at this time.

AMD wanted fair competiton, and here it is. Intel could keep prices high, but at what cost? Intel wanted to make their new CPU the mainstream CPU for its company, and sacrificed Netburst profits for it. That's it. I have no idea how much each Core uArch CPU costs, but it could be cheaper than Netburst was, so in reality, it isn't really losing money per CPU.

Why a price war? To regain market share and to put a hurt on AMD. That's about it.

 

[epsilon84]

All companies have competition, but few try to gain just a tiny extra bit of share at a cost of a big chunk of profit.

Put another way, why is Intel doing a price war. We all know they are. Just, why?

That's the only question. It isn't something else.

Intel has been slowly but steadily losing marketshare to AMD ever since K8 was released. At their high point they had 81% marketshare, they are now down to ~76% the last time I checked.

This is not merely about gaining back marketshare, it's about stopping the marketshare decline in the first place. I don't think Intel can ever get back to its 81% marketshare heydey, but it can at least stem the bleeding and perhaps even gain back 1 - 2% of the market, instead of steadily losing 0.5% per quarter to AMD.

In order to do that, Intel needs superior price/performance compared to AMD, hence the 'price war'.

 

[turpit]

All companies have competition, but few try to gain just a tiny extra bit of share at a cost of a big chunk of profit.

Put another way, why is Intel doing a price war. We all know they are. Just, why?

That's the only question. It isn't something else.

Intel has been slowly but steadily losing marketshare to AMD ever since K8 was released. At their high point they had 81% marketshare, they are now down to ~76% the last time I checked.

This is not merely about gaining back marketshare, it's about stopping the marketshare decline in the first place. I don't think Intel can ever get back to its 81% marketshare heydey, but it can at least stem the bleeding and perhaps even gain back 1 - 2% of the market, instead of steadily losing 0.5% per quarter to AMD.

In order to do that, Intel needs superior price/performance compared to AMD, hence the 'price war'.

Never say never:

While it may be surprising that Sun was moving towards Intel, given the firm's close connection with AMD, Schwartz had a good reason to call Otellini. According to Sun, 70% of Solaris installations on x86 systems run on Intel systems, not on AMD. Ignoring Intel meant ignoring 70% of its market. "That was a great motivation to work together," Schwartz said. Of course, the fact that Sun was able to convince Intel to market Solaris may have save the operating system's life: Seven million installations are considerable but the future of the software was uncertain: "There was the question if Solaris would suffer the same fate of other UNIXes," Schwartz said. "Now that issue is off the table."

And dont expect Intel to continue losing market share, or AMD to hold what it has. They are behind the power curve and need to get 65nm pumping out the door in reliable quantity. 1 &2/3 more qaurters is a long time to wait for K8L and AMDs 2 quarter "grace" period is over.

 

[halbhh]

Ok, that makes sense. If Intel was afraid of continued share losses, then they would be acting rationally (as opposed to emotionally).

Also thinking further about the price gap in the C2duos between the $320 6600 and the $510 (roughly) 6700, it's perhaps reasonable there is no $420 neighborhood chip (sans the laptop types), because the 6700 was to be the premium chip, and perhaps a $400 price point chip isn't really needed.

Nonetheless, if Intel is able to sell *all* it's C2duo production easily, (with no inventory at all), it would be clearly foregoing profits, which is unusual for any business, and notable for a publically owned company. I have some intel stock, and I don't really want them shortchanging me, an owner.

 

[halbhh]

....That's it. I have no idea how much each Core uArch CPU costs, but it could be cheaper than Netburst was, so in reality, it isn't really losing money per CPU.

Why a price war? To regain market share and to put a hurt on AMD. That's about it.

The issue isn't about "losing money" in the sense of selling below costs, it's about losing money in the sense of selling below what the market would willingly pay!

See my other reply just above.

 

[chuckshissle]

Did you made that avatar yourself?

 

[turpit]

Thats not true.

Intel needs market share because of its bulk. As Baron likes to point out continuosuly, they have a lot more "mounths" to feed than AMD. If Intel kept its prices high, and maximized profit per unit vs profit through volume, they would be selling less inventory. That would force them to make some hard descisions:
Storage: Continue production at high rates and pay to store the overage or reduce production?
If production is not reduced: risk eating the costs of storing products which might be obsolecsed in a few months time or not?
If production is reduced: lay people off or keep paying them for doing nothing?
Close fabs to consolidate production and maximize efficiency, or leave them open and continue paying the overhead?

If Intel does not sell what it produces it either has to shrink itself, or waste money. Its that simple. To maintain themselves at their current capacity/size, they need to sell in volume which means they need market share. AMD tried the "keep prices high" approach Q1 and Q2 of last year. That approach attrophied their market growth, which is to say they grew less market than they could have. That prices were not driven by demand was evidenced by the masive cuts they were able to make in july. AMD has been playing its cards wrong this year, and their chips are down. Theyre still in the game, but they need to be smart. Stunts like 4x4 are not smart. Brisbanes release was handled even more poorly than C2Ds. Not smart. They need K8L and they need to play it smart.

 

[NMDante]

Did you made that avatar yourself?

No.

The issue isn't about "losing money" in the sense of selling below costs, it's about losing money in the sense of selling below what the market would willingly pay!

Just cause it's lower than what the market is willing to pay, does that make it bad? Intel is still making a profit, albeit smaller than what it can be, but I think it's part of their strategy to push their newer technology.

 

[yipsl]

They were trying to dump their last gen stuff that no one wanted?

My idea for Intel is that they put all those Smithfields in computer controlled space heaters with wi-fi capability. That way, they could pawn off old tech as a new tech toy. Just think, a space heater that communicates with the refrigerator, the washing machine and the dishwasher.

I was going low end C2D, but I think I'll go X3800+. I'd like to keep AMD afloat and the performance isn't that bad. When Intel's sold the last Prescott, the last Smithfield, and the last Pressler, then I'll consider. I think they're holding us all back by dumping that dreck onto the budget market, when one of the upcoming Core 2 Solos would be the thing to put into an E-Machines box so Bubbe can read e-mail and surf mahjong strategy sites.

 

[fatcat]

There might be a more simple reason for Intel actual pricing policy. It's called, ''lets learn from past experience''. I think that in the past Intel didn't take AMD to seriously since they were pretty much always a distant second. In recent years though, AMD has been busting their chops a lot more then they like to and the advent of K8 certainly had Intel reevaluate their views on AMD and the CPU market in general. Now that they have retaken the lead, they don't want to make the same mistake again and they are just not cutting some slack to AMD.

Also, this pricing policy is certainly helping them clearing out their old inventory. I mean who would want to buy a Netburster that costs more than a Conroe ?

 

[turpit]

There might a more simple reason for Intel actual pricing policy. It's called, ''lets learn from past experience''. I think that in the past Intel didn't take AMD to seriously since they were pretty much always a distant second. In recent years though, AMD has been busting their chops a lot more then they like to and the advent of K8 certainly had Intel reevaluate their views on AMD and the CPU market in general. They don't want to make the same mistake again and they are just not cutting some slack to AMD.

Also, this pricing policy is certainly helping them clearing out their old inventory. I mean who would want to buy a Netburster that cost more than a Conroe ?

Yes, I agree thats part of it, if not the root cause. But how did intel recognize the threat?

Lost market share.

 

[fatcat]

Yes, market share is certainly the main indicator of that recognition.

 

[ches111]

Hal,

This is really very simple... Sorry you have had issue with detecting this...

Which would you rather do as a company?

A) Sell one chip @ $1000 with a profit of say $500 and only take up 1 OEM install worth of market share?

OR

B) Sell Two chips @ $1200 with a profit of $800 and take up 2 OEM install berths (one of which could have been your competitor)?

Is this really that difficult of a concept?

Let me help you here.

With A) you have a customer that paid a premium for a product that does perform well. He/She may not want to pay a premium again especially if the customer later sees the competition selling item B. You have in fact taken up a single "berth" in market share and may have a flip flop(no reference here to the jk kind 😉customer).

With B) you are still profitable (granted you have taken less profit from a single product) and you managed to take up TWO berths in the market share game. Not to mention the customer which purchased item B may be a "little" more likely to purchase again from the original vendor. Also in this scenario your "ON HAND/Shelved" product is moving quicker (don't kid yourself stockholders do look at these things).

On Hand/In Channel stock (product that has not yet sold) if not moved quickly leads to a backup in production. This is not a good thing. You are only making money if you are producing and selling chips. This was given as the reason (Intel's reasoning not mine) for shorting the prices of the P4 line.

Also, "Market Share" is what happens to drive the market . If Intel were to lose market share again to AMD what do you think the other side of this equation would look like? Stockholders would do what on a sharp decline in market share lost to AMD?



There is a lot more to this but I don't want to teach an economics 101 lesson tonight 😉

 

[halbhh]

See, you don't even have to do those guessing games at just exactly where those particular price points are. There is a more elegant way to satisfy *all* of the considerations and objectives together!

You just sell at the price points that sell *almost all* (say 98%) of your production. Whatever those price points are, so they are dynamic of course.

This lets you maximize profit, while meeting the demand your price point creates, without leaving people who would like to buy at that price point waiting.

If Intel is doing this it meets *your* criteria.

But.....I'm wondering if their product mix is oriented to maximize profit essentially. And perhaps altogether it isn't so bad, and isn't an intentional price war. There is that possibility.

It would be a price war if they had to lower prices re the above technique until the prices were too near their marginal cost of production (cost per chip), in which case you could say they are flooding the market and doing an intentional "price war".

I seem to have answered some of my own questions.

 

[halbhh]

Thats not true.

Intel needs market share because of its bulk. As Baron likes to point out continuosuly, they have a lot more "mounths" to feed than AMD. If Intel kept its prices high, and maximized profit per unit vs profit through volume, they would be selling less inventory. That would force them to make some hard descisions:
Storage: Continue production at high rates and pay to store the overage or reduce production?
If production is not reduced: risk eating the costs of storing products which might be obsolecsed in a few months time or not?
If production is reduced: lay people off or keep paying them for doing nothing?
Close fabs to consolidate production and maximize efficiency, or leave them open and continue paying the overhead?

If Intel does not sell what it produces it either has to shrink itself, or waste money. Its that simple. To maintain themselves at their current capacity/size, they need to sell in volume which means they need market share. AMD tried the "keep prices high" approach Q1 and Q2 of last year. That approach attrophied their market growth, which is to say they grew less market than they could have. That prices were not driven by demand was evidenced by the masive cuts they were able to make in july. AMD has been playing its cards wrong this year, and their chips are down. Theyre still in the game, but they need to be smart. Stunts like 4x4 are not smart. Brisbanes release was handled even more poorly than C2Ds. Not smart. They need K8L and they need to play it smart.

Good points. Essentially, instead of a price war, it's just the outcome of both companies expecting to gain market share and having production accordingly, along with what I'd guess is some slowed demand re people waiting for Vista recently.

 

[ches111]

See, you don't even have to do those guessing games at just exactly where those particular price points are. There is a more elegant way to satisfy *all* of the considerations and objectives together!

You just sell at the price points that sell *almost all* (say 98%) of your production. Whatever those price points are, so they are dynamic of course.

This lets you maximize profit, while meeting the demand your price point creates, without leaving people who would like to buy at that price point waiting.

Of course I over simplified the pricing points. Do you not think that Intel has mauled over their price points again and again? Do you think that maybe just maybe they have a team of people deciding the pricing that would give the best ROI (Return on Investment)? ROI is not simply based on the pricing of a single product or even an entire product line. It is based on cross markets, product bottom line, market share, stockholders (how they are thinking), where can you push/lead/extract a market.

You think that the Core 2 Duo line is the only finger in the pie ? How about all those wonderful chipsets they also sold you know the 965 and 975 variants? How about their mobile processor (not just notebooks but ARM as well) which also gains notoriety when everyone hears again the name Intel?

How about that too. Free/limited funds for marketing. This is a lesson learned from AMD definitely. What are we talking about on these forums these days? AMD got next to free marketing from folks like us which actually stole market share away from Intel. Now they are doing the same. In fact, if Intel remain the same marketing machine that they used to be and on top of that add word of mouth?

There is far too much involved, this is much more than just the pricing of a single line of chips.

 

[turpit]

Thats not true.

Intel needs market share because of its bulk. As Baron likes to point out continuosuly, they have a lot more "mounths" to feed than AMD. If Intel kept its prices high, and maximized profit per unit vs profit through volume, they would be selling less inventory. That would force them to make some hard descisions:
Storage: Continue production at high rates and pay to store the overage or reduce production?
If production is not reduced: risk eating the costs of storing products which might be obsolecsed in a few months time or not?
If production is reduced: lay people off or keep paying them for doing nothing?
Close fabs to consolidate production and maximize efficiency, or leave them open and continue paying the overhead?

If Intel does not sell what it produces it either has to shrink itself, or waste money. Its that simple. To maintain themselves at their current capacity/size, they need to sell in volume which means they need market share. AMD tried the "keep prices high" approach Q1 and Q2 of last year. That approach attrophied their market growth, which is to say they grew less market than they could have. That prices were not driven by demand was evidenced by the masive cuts they were able to make in july. AMD has been playing its cards wrong this year, and their chips are down. Theyre still in the game, but they need to be smart. Stunts like 4x4 are not smart. Brisbanes release was handled even more poorly than C2Ds. Not smart. They need K8L and they need to play it smart.

Good points. Essentially, instead of a price war, it's just the outcome of both companies expecting to gain market share and having production accordingly, along with what I'd guess is some slowed demand re people waiting for Vista recently.

Oh, its a price war, but the battle for Intel is market share, not profit margin. AMD did shake them, no doubts about it. If not, Intel would have released C2D at prices relative to AMDs performance levels, in fact, if it werent for AMD there wouldnt have been much reason for C2D in the first place. Intel wants its share back. If they continued to lose share, theyd have no choice but to shrink.

AMD wants a bigger share too, but they cant support it yet. They bit off as much if not more than they could chew last year, which is why 65nm is so important. A 31% increase in production with no increase in manufacturing capacity. 65nm is nothing but good for AMD now. If they can get it squared away and working

 

[halbhh]

See, you don't even have to do those guessing games at just exactly where those particular price points are. There is a more elegant way to satisfy *all* of the considerations and objectives together!

You just sell at the price points that sell *almost all* (say 98%) of your production. Whatever those price points are, so they are dynamic of course.

This lets you maximize profit, while meeting the demand your price point creates, without leaving people who would like to buy at that price point waiting.

Of course I over simplified the pricing points. Do you not think that Intel has mauled over their price points again and again? Do you think that maybe just maybe they have a team of people deciding the pricing that would give the best ROI (Return on Investment)? ROI is not simply based on the pricing of a single product or even an entire product line. It is based on cross markets, product bottom line, market share, stockholders (how they are thinking), where can you push/lead/extract a market.

You think that the Core 2 Duo line is the only finger in the pie ? How about all those wonderful chipsets they also sold you know the 965 and 975 variants? How about their mobile processor (not just notebooks but ARM as well) which also gains notoriety when everyone hears again the name Intel?

How about that too. Free/limited funds for marketing. This is a lesson learned from AMD definitely. What are we talking about on these forums these days? AMD got next to free marketing from folks like us which actually stole market share away from Intel. Now they are doing the same. In fact you remain the same marketing machine that you used to be and on top of that add word of mouth?

There is far too much involved, this is much more than just the pricing of a single line of chips.

No doubt.

Planning the production lines, their capacity, is certainly a roll of the dice, and certainly the issue of profits depends largely on those choices.

Given the overproduction of netburst chips, when it was already clear the AMD alternatives were superior in 2005, along with the rhetoric and such, and you can see why some would think it's a planned price war.

Now I'm thinking it's more the blundering through the fog kind of thing (the seeming overcapacity), since no one can predict consumer demand that accurately, much less the delays of Vista, etc.

What's less clear is whether it would be advantageous for Intel at this moment to have somewhat higher prices for it's C2duos even if it meant some inventory build, in view of the Vista consumer delay, and the advantages of greater revenue. But there's no way for me to guage this from the outside. Is Intel sacraficing profits just to squeeze AMD (and also it's own shareholders)? Or is it only being reasonable, and actually maximizing it's profits right now?

 

[ches111]

Hal,

You keep asking the same question in a differing manner.

You have been told by many here what is a likely and sometimes factual manor.

Intel told all of us that they were going to take a loss on their P4 line. They went public with that. They also went public with the reasoning. They had too much stock on hand. At a car dealership for instance these ON-STOCK vehicles incur what we call "Floorplan Charges", the longer a vehicle stays on the lot the higher the price that vehicle needs to sell at to recover costs (regluar washing/insurance/sales staff. Other industries call these similar charges "stewardship" or the cost of maintaining stock. After some period of time it becomes cost beneficial to just off-load your stock and move on.

This was Intels case. They had a better processor in the works (widely advertised as the one to beat). They had too much stock on hand of the P4s. They off loaded them.

Pretty simple actually.

 

[halbhh]

yeah, I think the P4 situation is pretty simple and obvious enough. Months ago, on another forum I suggested perhaps the best thing (for Intel!) was to grind up some of those chips into dust, but that was only an attempt to stimulate some creative new thinking. Dumping them cheap in Asia was a good option of course. Altogether, Intel has probably done as well as it could with them. Witness it had to lay off a lot of people!

Not sure exactly what you mean re "manor", but if you just mean people are answering the question, I agree! I count about 3 posts that gave good answers that made sense, and helped me see through the "price war" buzz in the media.

Don't presume I'm the average obstinate arguer here. Actually, I'm far more interested in finding new ideas and insights than silly ego arguing!

Thanks for you great posts.

 

[ches111]

By manner I meant:

You keep asking the same question in a different way.

So far it seems that many of the good/accurate and appropriate answers given already will not suffice.

You seem to have an agenda. Would you care to just come out and say what that is?

If you are partial to AMD or even an AMD troll please state this as fact so we can continue on in such a manner which is equal to your tastes.

Being "partial to AMD" is NOT a bad thing at all. Being a "Troll" is.

So far your posts in this and other forums has leaned toward the Troll side. I would hate to see you misrepresented/misunderstood.

Right (now) I am kinda partial to Intel's current product release over that of AMD's. I however will switch to the green team in a heartbeat if they start to produce the performance leading chip. I am very very partial to performance.

 

[halbhh]

I see you didn't read thru. Even the last post.