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Inventories remain high; fab utilization down at Intel. Ho hum |
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Jan 17, 2007 at 04:58 PM |
There was some good news coming out of Intel's 4Q06 conference call, but there was also some bad news that could lead to some ugly news!
Roll-out of new microprocessors had seen (though Intel declined to confirm this) that the company may have regained some market share in the server space with continued dominance/growth in notebooks and desktops providing some growth, but slower than expected. New dual core MPUs easily passed 50 percent of total chip production on its 65nm process with much of the chipset and wireless chips migrating to the 90nm node. NOR was also confirmed to be in production at the 65nm node, with the result that it should help margins. Actual unit sales were also a company record.
The impression given by Intel executives was that the worst of last-year's nightmare had passed! To top this off, Intel reiterated that 45nm process development was complete, locked down and tool orders placed to kick-in in the second-half of 2007.
However, the price war with AMD is taking its toll on margins. That might be acceptable on the less than 50 percent legacy MPUs still in production, but it was also clear that prices for new MPUs, especially those in the server space, are under pressure. That's not good!
Inventories may have fallen slightly in the quarter due to seasonality benefits, but overall, inventories for the 12-month period are rising. My math puts days of inventory hovering in the 90 to 100 range, up from approximately 70 to 80 days earlier in the year. At a value of $4.3 billion that's a lot of ‘burn' needed by Intel in 2007!
Bryant said that he wasn't too concerned at the inventory levels, as shortages (in chipsets) only had a recent negative impact on the company. He was therefore suggesting that days of inventory were maybe a little higher than he had wanted, but with the competitive landscape the company was in, it is something he is prepared to live with—for now!
Indeed, he was hoping for flat inventory levels in Q1 due to seasonally soft sales and was hoping things didn't get worse in the second half of the year to allow some skimming off the top for the ‘back to school' period.
But Bryant didn't convince anyone, though I actually didn't think he was trying to convince himself that inventory levels would change much in 2007. The concern here is that Intel noted that in 4Q06 it actually slowed production of both legacy and leading-edge devices. Utilization in front-end fabs actually fell, which contributed slightly to the margin pressures.
With a slower quarter of sales ahead, we would expect utilization rates to fall further should the small market share gains hold. The announced sale of Fab 23 could also indicate that Intel has found room for that fab's output elsewhere within its fab portfolio and could dampen further falls in utilization. Overall, it is not a good position to be in when inventories are growing while fab utilization is falling. This, however, is what is required to get through an inventory glut and lower (seasonal) demand. The net result - as many analysts on the conference call kept focusing on - was gross margins.
Basically, Intel's margins are going to fluctuate downwards in 2007 more so than upwards. The days of 60 percent-plus margins are gone for now, and it is possible that the 50 percent levels will be tough to keep!
I was also interested in what was said about Quad cores, as the notebook sector is where the sales action seems to be concentrated. Intel remarked on this, saying that pushing Quads into notebooks for the second half of the year would be a key focus.
That makes sense when coupled with the 45nm ramp, but cooling Quads and demonstrating apps best suited to notebooks that take advantage of Quads is another matter! That's going to be an interesting one to watch!
All in all, the Q4 results from Intel were a mixed bag. How mixed those results were can only really be commented on when we see AMD's results!
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| R&D Manager (, 08/04/2008) | | Senior Technical Program Manager (Dublin, Ireland, 02/04/2008) | | Senior Embedded Design Support Engineer (Shannon, Co Clare, Ireland, 19/03/2008) | | Embedded Support Engineer (Intel Shannon, Co Clare, Ireland, 19/03/2008) | | Wireless Market Development Manager - Sweden - Semiconductors (, 29/08/2007) |
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