What's Intel's Plan?

[halbhh]

Was thinking about Intel's pricing choices, how they have lowered prices more than needed to gain some market share and do well, just in order to "regain" the market share (from the recent 75% back up to 80%?) that they had.

Normally a business tries to maximize profits over time, but Intel seems to have a different motivation for now, best as I can gauge.

It's as if the difference between a 78% market share and a 80% market share is *more* important than a big chunk of their entire profits!

That's unusual, in the business world. Even more than unusual.

It's as if Coke choose to forego a big chunk of it's profits just to get a bit of extra share on Pepsi, and overall losing a lot of profits to do it, with little chance of regaining that money over time. This would be shooting itself in the foot.

I was trying to imagine why Intel chose to do this, and none of the possibilities I can think of make a lot of sense to me.

A) Ego. Intel somehow feels that less than 80% is very serious loss of prestige somehow. (This seems unlikely to me).

B) Fear. Intel hopes to prevent AMD from being able to be a stong competitor say 4 years from now by reducing AMD's profits now. (This seems unlikely, since it won't actually work. AMD doesn't need huge profits in order to innovate and progress).

C) Philosophy? I vaugely remember an Intel CEO wrote some book about Only the Paranoid Survive or somesuch. This could be behind it, but again, it seems less smart than you'd expect at this level of corporate size. In the longer run Intel will do well precisely depending on it's innovation, not on AMD.

D) Some better reason that I can't think of.

Does anyone have better insight?

-----------------------------------

Edit:
Some Interesting discussion, especially in page 2 of the posts. Finally I think it's more the difficultly in planning than an intentional price war.

Also re the votes on this OP, you'd think it was an evaluation of advice, but of course this post has no advice! It's exactly as it appears: asking an interesting question, and soliciting, finally, some interesting discussion (in page 2). So the thread became in time a 5 star thread for me, through the discussion and insights.

 

[31computers]

Are You in the right Forum old chap? 8O

 

[r0ck]

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

 

[heartview]

The basis of Intel's strategy is volume. The more CPU's they can pack on a wafer the more money they make per CPU. They aggressively shrink the die size, improve their manufacturing process, increase the size of their wafers, and generally produce more good chips. It is about efficiency. Intel can make them cheaper so they can sell them cheaper. AMD cannot compete with that strategy.

At this point, my take on it is that Intel is looking at AMD and saying, "We're tired of your hot air, put up or shut up." They're smearing them on every front, why not volume too? Think of this as WWII, where AMD is Japan and Intel is the USA. You figure out the rest.

 

[halbhh]

The basis of Intel's strategy is volume. The more CPU's they can pack on a wafer the more money they make per CPU. They aggressively shrink the die size, improve their manufacturing process, increase the size of their wafers, and generally produce more good chips. It is about efficiency. Intel can make them cheaper so they can sell them cheaper. AMD cannot compete with that strategy.

At this point, my take on it is that Intel is looking at AMD and saying, "We're tired of your hot air, put up or shut up." They're smearing them on every front, why not volume too? Think of this as WWII, where AMD is Japan and Intel is the USA. You figure out the rest.

 

[halbhh]

The basis of Intel's strategy is volume. The more CPU's they can pack on a wafer the more money they make per CPU. They aggressively shrink the die size, improve their manufacturing process, increase the size of their wafers, and generally produce more good chips. It is about efficiency. Intel can make them cheaper so they can sell them cheaper. AMD cannot compete with that strategy.

At this point, my take on it is that Intel is looking at AMD and saying, "We're tired of your hot air, put up or shut up." They're smearing them on every front, why not volume too? Think of this as WWII, where AMD is Japan and Intel is the USA. You figure out the rest.

So you're saying the answer is:

Animosity.

?

 

[heartview]

No, I'm saying that Intel hasn't changed their strategy on this front, except now they're doing it with a better architecture. As long as Intel aggressively improves their architecture instead of sitting on it like they did with Netburst, they will be nearly unstoppable.

 

[TechnologyCoordinator]

So you're saying the answer is:

Animosity.

?

No, that's what you're trying to say.

Intel is lowering the prices on it's old processor architecture because it is in competition not only with AMD, but also with Intel's new Core 2 Duo line.

 

[NMDante]

What year did Intel not make a profit?

Intel is selling off inventory, and trying to push it's Core uArch to the mainstream, hence the lower prices. Combine that with the fact that it's 65nm process has matured, and as someone has mentioned, more efficient and cheaper, means that it can sell it's newer products a little lower than previous products when first released. Yes, a company would like to maximize their profits, but Intel is trying to show the channel, and the market that they are the better choice, both in performance and price.

As for your point B of Fear. No, it's not fear, but realization that AMD is a threat, and is being seen as one. If you don't believe that having profits will not affect any innovation or progress, you're mistaken. A loss in profits (not a decline, but showing a loss) will affect R&D, since there will be less to commit to any new technologies.

As long as Intel has to show a good return to it's shareholders, it will do what it has to do just that.

 

[halbhh]

So you're saying the answer is:

Animosity.

?

No, that's what you're trying to say.

Intel is lowering the prices on it's old processor architecture because it is in competition not only with AMD, but also with Intel's new Core 2 Duo line.

If I was "trying to say" that, I would have said it!

Frankly, I don't think "animosity" is the reason, but....if everyone else thinks so, then perhaps it is.

In the meantime, I'll hope to find a more rational reason.

Btw, I didn't say that Intel only lowered prices on netburst chips. They have lowered prices on all chips, and have publicly stated it's important to regain all that marketshare, and that's the part that doesn't make to sense to me yet.

 

[halbhh]

What year did Intel not make a profit?

Intel is selling off inventory, and trying to push it's Core uArch to the mainstream, hence the lower prices. Combine that with the fact that it's 65nm process has matured, and as someone has mentioned, more efficient and cheaper, means that it can sell it's newer products a little lower than previous products when first released. Yes, a company would like to maximize their profits, but Intel is trying to show the channel, and the market that they are the better choice, both in performance and price.

As for your point B of Fear. No, it's not fear, but realization that AMD is a threat, and is being seen as one. If you don't believe that having profits will not affect any innovation or progress, you're mistaken. A loss in profits (not a decline, but showing a loss) will affect R&D, since there will be less to commit to any new technologies.

As long as Intel has to show a good return to it's shareholders, it will do what it has to do just that.

Perhaps if you re-read the OP and respond.

In the meanwhile you've pointed out similar reasons to what I mentioned for why it doens't make sense, except you think AMD needs large profits to innovate. They didn't before, and don't now, of course.

Intel obviously cannot sell every last chip that they can possibly manufacture without selling chips at a loss. So with the obvious discounted, why are they foregoing the profits a normal business would prefer?

Intel doens't need 80% market to make profit, that 78% share doesn't allow. Selling price is much more important.

 

[NMDante]

What year did Intel not make a profit?

Intel is selling off inventory, and trying to push it's Core uArch to the mainstream, hence the lower prices. Combine that with the fact that it's 65nm process has matured, and as someone has mentioned, more efficient and cheaper, means that it can sell it's newer products a little lower than previous products when first released. Yes, a company would like to maximize their profits, but Intel is trying to show the channel, and the market that they are the better choice, both in performance and price.

As for your point B of Fear. No, it's not fear, but realization that AMD is a threat, and is being seen as one. If you don't believe that having profits will not affect any innovation or progress, you're mistaken. A loss in profits (not a decline, but showing a loss) will affect R&D, since there will be less to commit to any new technologies.

As long as Intel has to show a good return to it's shareholders, it will do what it has to do just that.

Perhaps if you re-read the OP and respond it would be nice.

In the meanwhile you've stated exactly the reasons I mentioned for why it doens't make sense. Intel obviously cannot sell every last chip that they can possibly manufacture without selling chips at a loss. So with the obvious discounted, why are they foregoing the profits a normal business would prefer?

They are still making a profit, even with lower prices. Where's the problem?

Are you trying to say that they should raise their prices just to gain more profits, over gaining back market share that they lost? Or are you trying to convince people that Intel doesn't know what they are doing, as a company, since they only gained $1.9B USD last quarter over $3.9B the year previous? It's their strategy, to regain market share, in all areas. To do that, they are discounting their old inventory, and introduced the Core uARch at a price that would be reasonable for someone to afford to upgrade to. I don't see a problem, and I am a shareholder.

Do you have any proof that Intel is manufactuering CPUs at a loss? Do you have the price of each CPU per wafer? Or even a chipset per wafer?

Sounds almost like you're upset that Intel's pricing is a stiff competition for AMD's product line, something that helped AMD gain it's foot hold in the CPU market. I frankly like the price war. Lower prices for top notch items. Why don't you like it?

 

[heartview]

They are still making a profit, even with lower prices. Where's the problem?

Are you trying to say that they should raise their prices just to gain more profits, over gaining back market share that they lost? Or are you trying to convince people that Intel doesn't know what they are doing, as a company, since they only gained $1.9B USD last quarter over $3.9B the year previous? It's their strategy, to regain market share, in all areas. To do that, they are discounting their old inventory, and introduced the Core uARch at a price that would be reasonable for someone to afford to upgrade to. I don't see a problem, and I am a shareholder.

Do you have any proof that Intel is manufactuering CPUs at a loss? Do you have the price of each CPU per wafer? Or even a chipset per wafer?

Sounds almost like you're upset that Intel's pricing is a stiff competition for AMD's product line, something that helped AMD gain it's foot hold in the CPU market. I frankly like the price war. Lower prices for top notch items. Why don't you like it?

All very good points.

Besides, Intel raising prices just because it could doesn't exactly look good to the anti-trust folks, you know?

 

[halbhh]

I didn't state all the obvious things in my OP, but perhaps it would be good to put a few here after all.

Intel can't possibily sell every last chip it can possibly manufacture without lowering the selling prices so much that they make little or no profit, since AMD would just match the price/performance ratios in the middle and low ends.

The low prices are nice for us all, and might even have a good effect of causing customers to upgrade their computers more often, instead of only once in a long time.

Low prices are fine if the big volume (many customers) show up.

Etc. all the obvious things.

 

[NMDante]

I didn't state all the obvious things in my OP, but perhaps it would be good to put a few here after all.

Intel can't possibily sell every last chip it can possibly manufacture without lowering the selling prices so much that they make little or no profit, since AMD would just match the price/performance ratios in the middle and low ends.

The low prices are nice for us all, and might even have a good effect of causing customers to upgrade their computers more often, instead of only once in a long time.

Low prices are fine if the big volume (many customers) show up.

Etc. all the obvious things.

No, they can't sell everything they manufacture at so low a price that it won't make a profit, but right now, every CPU made is selling at a profit. Not a large one, but it's still a profit. And with the release of the E4xx series, the mid/low range CPUs are in for a major shake down, since these CPUs are aimed for that target audience.

Upgrading their companies? What does that mean? If you mean, switching from Intel to AMD, or AMD to Intel...that's been around for years, and a won't change. If AMD releases a CPU that blows Intel's best out of the water, the switch will occur again. Not sure what you mean by upgrading companies.

 

[halbhh]

not "companies", "computers". It would be nice if the low prices lead to average people to buy new computers more often (shorter average cycle time) than they do.

 

[NMDante]

not "companies", "computers". It would be nice if the low prices lead to average people to buy new computers more often (shorter average cycle time) than they do.

That would only be nice to the enthusiast, and not so much to Uncle Joe and Aunt Mary who check their email and surf the web for new cornbread recipes.

The price war has hurt everyone involved with CPUs, especially T1 vendors, who had to cut their prices along with AMD and Intel. But it has helped with sales for all.

Yes, Intel's pricing has seem aggressive, but in order to regain loss markets and even gain new customers (like Sun), it seems to have worked. With more market share, usually comes more profits. Not all the time, but usually it works out that way.

 

[heartview]

Intel has been perfecting their manufacturing process and the transition from generation to generation with amazing alacrity. Relatively recently they figured out that they actually SAVE money by transitioning faster, so long as they can keep up the efficiency and yields, which they have managed to do well enough so far.

So, in essence, Intel is shrinking their process at a faster pace because it allows them to make MORE money, not less. There will always be points between architecture transitions where they will have to face low margins on some products (Pentium D anyone). But, they have never needed to sell their CPU's at a loss.

You are trying to make a conspiracy out of circumstance. Core 2 is better than Netburst, so they transition everything to Core 2 and sell off the Netburst inventory. Die shrinks mean higher yields and more profit, so they transition away from the old technology as quickly as possible. This is the Intel machine in its prime.

AMD has survived in the past by being innovative compared to Intel. Now that Intel has the superior technology AND the superior manufacturing process, AMD has to figure out what to do. AMD has to come out with something better than a "Core 3" at this point and make it soon, or they will lose any strength they have left and have only their fans to turn to as customers.

 

[halbhh]

not "companies", "computers". It would be nice if the low prices lead to average people to buy new computers more often (shorter average cycle time) than they do.

That would only be nice to the enthusiast, and not so much to Uncle Joe and Aunt Mary who check their email and surf the web for new cornbread recipes.

The price war has hurt everyone involved with CPUs, especially T1 vendors, who had to cut their prices along with AMD and Intel. But it has helped with sales for all.

Yes, Intel's pricing has seem aggressive, but in order to regain loss markets and even gain new customers (like Sun), it seems to have worked. With more market share, usually comes more profits. Not all the time, but usually it works out that way.

Yes, that's right. But I made the post because Intel appears to have gone past that point to just foregoing profits they could have with stable market share.

I am thinking of another possible explanation for this. Perhaps Intel fears the new K8L architecture, and wants to slow AMD down in terms of market growth in 2008 by pulling in more of the upgrading buyers sooner, like a defensive action.

 

[halbhh]

Intel has been perfecting their manufacturing process and the transition from generation to generation with amazing alacrity. Relatively recently they figured out that they actually SAVE money by transitioning faster, so long as they can keep up the efficiency and yields, which they have managed to do well enough so far.

So, in essence, Intel is shrinking their process at a faster pace because it allows them to make MORE money, not less. There will always be points between architecture transitions where they will have to face low margins on some products (Pentium D anyone). But, they have never needed to sell their CPU's at a loss.

You are trying to make a conspiracy out of circumstance. Core 2 is better than Netburst, so they transition everything to Core 2 and sell off the Netburst inventory. Die shrinks mean higher yields and more profit, so they transition away from the old technology as quickly as possible. This is the Intel machine in its prime.

AMD has survived in the past by being innovative compared to Intel. Now that Intel has the superior technology AND the superior manufacturing process, AMD has to figure out what to do. AMD has to come out with something better than a "Core 3" at this point and make it soon, or they will lose any strength they have left and have only their fans to turn to as customers.

Believe you me, I don't buy conspiracy theories! No, Intel has a plan, and it doesn't make sense to me yet.

Why is Intel selling the e6400 at that very low price?

 

[Featherstone]

His point is, it seems like they are making a lot less per processor in order to get 80% of the share as opposed to making a lot more per processor and getting 78% of the market.

example (these numbers are completely made up)

if they sell 78 million processors for $100 profit each, that is a lot better profit then selling 80 million processors for $50 profit each.



Now I have no clue if his numbers are correct or not, but people are completely misunderstanding his point.

 

[32nano_meter]

It is called a price war, my friend. :lol:

 

[heartview]

I am thinking of another possible explanation for this. Perhaps Intel fears the new K8L architecture, and wants to slow AMD down in terms of market growth in 2008 by pulling in more of the upgrading buyers sooner, like a defensive action.

Why does any of this have to be based on fear? I think Intel is just keeping the ball rolling instead of artificially slowing down the rate at which the industry advances, like they have in the past. Intel could have jumped from 2GHz to 3GHz VERY quickly during the P4 era, just like AMD could have. In the past it was smarter for them to slow down and enjoy the profits. It is now a game of "who can run the other guy's profits down first". AMD just happens to be losing that war.

Intel is making faster chips at an accelerating rate. The ONLY likely thing that will slow them down is if the software folks can't keep up and we get to a point where everyone has 4+ cores on their desktop while only utilizing 2 of them. Another possibility, though unlikely at this point, is that if Intel doesn't aggressively work on "Core 3" and instead continues to milk Core 2 for longer than the market will allow (like they did with Netburst).

 

[dasickninja]

To force AMD out of that target market.

 

[heartview]

His point is, it seems like they are making a lot less per processor in order to get 80% of the share as opposed to making a lot more per processor and getting 78% of the market.

example (these numbers are completely made up)

if they sell 78 million processors for $100 profit each, that is a lot better profit then selling 80 million processors for $50 profit each.



Now I have no clue if his numbers are correct or not, but people are completely misunderstanding his point.

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.