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In a market that doesn’t share! |
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Apr 18, 2007 at 11:30 AM |
Listening to Intel's first quarter conference call late last night was a little disturbing for a few reasons. Firstly, the lack of clarity over perceived market share gains: only a few quarters ago, Otellini and Bryant were happy to state to analysts that they were winning market share back from AMD. However, the reality was rather different.
In this call neither executive mentioned market share gains or losses in the prepared comments and interestingly avoided giving an answer when questioned. This time they were happy to let the market researchers speak for them, though we will have to wait for the number crunchers to do what they do before that point is settled.
This is all very strange when you consider that the war being waged between Intel and AMD is based on market share!
Added to that are the quotes from the financial analysts in recent weeks all harking on about Intel's regaining of some market share. Only one analyst, John Lau, asked directly about market share gains but didn't get an answer. That's a problem for John because he has been vocal about Intel winning back market share!
The other thing I was looking for in the call was clarity over inventory. Again, it wasn't directly tackled by the execs, prompting one analyst to ask about it, though he actually ended up giving them the figures rather than the other way round!
Joe Osha at Merrill Lynch said this:
"Hi, folks. Congratulations on the solid execution. Listen, I looked at this, your revenues flat on a year ago, your gross margins down by 500 base points and you've added about $900 million in inventory, and you've reduced your competitor to rubble in the process.
Thanks Joe for working out the inventory build increases - my last figure put it at $4.3 billion with about $1.7 billion in the finished goods category."
Another worrying point was the news from Bryant that inventory would increase in the next quarter as Intel prepared for the expected market demand season in the second half of the year.
What seems to me to be wrong with that comment is that with $4 billion-plus of chips stacked on shelves already, why add more?
I can only assume that the chips on the shelves are just not going to shift and the inventory build expected is for the chips that Intel can sell!
Another key data point that everyone wanted to get an update on was gross margins. Intel was well aware of this after a year of them falling, but this quarter we wanted to know if they were trending up rather than continuing to fall.
The real reason for this was that if Intel was gaining market share, then basically margins would increase. Well, that happened, but only just as they topped 50 percent compared to 49 percent previously.
To me - and I am happy to proved wrong here - that doesn't indicate across the board market share gains.
Otellini basically said this:
"I believe that we'll be able to maintain our competitive lead in servers and in high-end desktops."
That's the sweet spot but not the volume business end.
In different parts of the conference call it became clear to me that margins improved because of tax savings, job losses and keeping all fabs running at high capacity levels. If Intel had actually reduced utilization rates to better meet market demand (remember the inventory build?) then margins would surely have been lower.
My final point concerns the NOR flash business. Once again this was loss making and Intel execs simply reiterated comments made many times before regarding fixing the problems.
My take is as mentioned in recent blogs: Intel can't fix this problem unless it migrates NOR production to 300mm fabs. There are none to spare and no indication was given that this would happen sooner rather than later!
The bet is that Intel offloads this business soon!
We wanted clarity on Intel's market share gains but didn't get it! Let's hope AMD provides the answers in a few days.
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