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Intel Q2 report: 'Broad family' of 45 nm CPUs shipping by the end of 2007

By - Source: Tom's Hardware | B 0 comment

Santa Clara (CA) - Intel today presented itself as a leaner company that apparently has become less vulnerable to competitive pressure from AMD. Much of the company’s current success is based on its advantage in mobile and quad-core processing platforms at this time and the company believes that its “best defense” against AMD is a better product lineup, which is scheduled to arrive in force by the end of this year.

Intel showed a solid Q2 performance today, indicating that it is on track to recover from a painful downturn in revenues and profits last year. A look on the Q2 balance sheet reveals that Intel’s Core architecture as well as its restructuring program has kicked in and delivers the results financial analysts are looking for.

Pricing pressure shifts to low-end

According to chief executive officer Paul Otellini, Intel saw a sequential increase in unit shipments of microprocessors in Q2, a decrease in unit cost and a decrease of the average selling price (ASP). Overall, the company was still able to improve its margins, despite a lower ASP, which indicates that Intel has gained a good grip on the price war with AMD.

Asked about the current competitive environment with AMD, Otellini company said that he noticed the competitive pressure shifting from a “higher end of the stack” in the beginning of this year to the lower end in Q2. With the recent price reductions, AMD essentially has surrendered the higher-margin desktop processor market as well as higher-margin 2P server market to Intel, which is generally considered to be delivering higher performance processors in these segments at this time. According to Otellini, there has been “strong acceptance” of quad-core processors in the server segment, with more than 1 million quad-core Xeon DP processors shipped so far and shipments having doubled from Q1 to Q2.

Intel believes that the second half of the year will offer growth opportunities especially in mobile, where the firm’s Santa Rosa platform appears to gain traction and in the 4P+ server space, which will see the addition of the “Caneland” platform and Tigerton Xeon MP processors - the final component of the Core product family and currently available in sample numbers – to compete with AMD Opteron 4P+ processors.

Chief financial officer Andy Bryant believes that AMD will continue to “sell aggressively”, but he noted that Intel “will try to maintain market share, if we can.” During the Q2 conference call, he told analysts that the company considers “better products” as the “best defense” in the competitive environment with AMD. This defense appears to be the 45 nm product generation, which Otellini said will arrive as a “broad family” in the fourth quarter of this year. According to sources, Intel will be shipping Penryn core-based CPUs for servers, desktops and mobile computers in Q4, with first products launching for servers and desktop PC.

Product mix changes

40% of all Intel client processors shipped in Q2 were mobile processors, continuing the shift towards mobile processors and to an area where Intel still has the upper hand : AMD will be forced to compete in the sub-$1000 segment of the notebook market due to the lack of CPUs that can compete with Intel in terms of performance at least until the end of 2008, according to current roadmaps. Intel’s balance sheet reveals that more and more revenue share is acquired by the firm’s Mobility Group, accounting for 37.9% of the sales (processors and chipsets) in Q2, up from 33.6% one year ago. Notebook revenues and shipments surged by 22% on a year-over-year basis, while the operating profit climbed by 26%.

The Enterprise Group (which includes desktop and server processors, chipsets and motherboards) surrendered revenue share in the same time frame and dropped from 57.8% to 53.5%. However, while the Enterprise Group was under huge competitive pressure from AMD last year, the business has reversed the trend and sees its profit increasing again, from $751 million in Q2 2006 to $817 million in Q2 2007, on revenues of $4.61 billion and $4.64 billion, respectively. For comparison : The mobile business currently made a profit of $1.25 billion on revenues of $3.30 billion in Q2 2007.

Restructuring update

Intel executives attribute a part of the increased profitability of the company to a successful restructuring program. Otellini mentioned that the Intel saw a “higher than expected efficiency” in Q2, which resulted in higher profitability on the one side and allows the company to actually decrease its capital expenditures (i.e. fab investments) on the other : Instead of about $5.5 billion, Intel will only invest about $4.9 billion.

There were very few details provided about efficiency gains, Bryant however said that Intel has found ways to “use tools more efficiently” and improve its production yields.

The company dropped a total of about 12,000 employees since the announcement of the restructuring so far and currently stands at about 90,300, Bryant said. The restructuring cost for Q2 was about $150 million.

Despite the overall positive result, analysts reacted disappointed to the Q2 result, sending Intel’s stock down about 4.2% in after hour trading. AMD stock was sown by 2.15.

AMD is scheduled to deliver its Q2 result on Thursday.

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