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I agree that Intel has an astonishing gross profit margin. But as any shareholders or company management will tell us, the more important part is the "net" profit margin.
Actually if you look at most pharmaceutical companies you'll see their gross margins are even better than Intel's, whilst their net margins are worse. And they tend to compete in markets the exact opposite to Intel - very high volumes at relatively low cost (excepting a few special drugs).
One option for Intel is to do major acquisitions. But looking back Intel's acquisition history, there are some questionable decisions. For example, so far the two largest acquisitions both happened in 2010. Intel paid US$1.4B for Infineon's mobile division and US$7.6B for AntiVirus/Security software company McAfee. I didn't understand then in 2010 about the logic for buying McAfee. And I still don't understand it today about what exactly this acquisition's importance to Intel's long term survival.
I'd create a 'new memories' division with the goal of beating Samsung in volatile and non-volatile memory. If Intel can't come up with a better new idea or make an existing one better then nobody can.
Memory is always commodity. But at least it's a relatively stable commodity compared with foundry for mobile processors which truly is boom or bust ! I suspect Samsung/Hynix/Toshiba/Micron make more on the memory in an iPhone than Samsung/TSMC make on the processor, and for less grief.
hist78, They clearly stated they bought McAfee to have hybrid security that was a combination of hardware and software. Great idea if you could create a monopoly type product. I don't know what ever happened to Intel's project and haven't heard or read a word on it. I might check it out when I have time if someone doesn't provide an answer.
Intel first announced plans to acquire McAfee in August 2010 for $7.7 billion in cash. The chip company paid $48 a share for McAfee, a whopping 60 percent premium for the antivirus software maker.
I focused on gross profit margin to give indication of how good Intel would be able to withstand tough times for the short to mid-term. High gross profit margins means a lot of room for cost cutting to increase net profit margin.
Comparing net profit margin of an IDM to a pure play foundry is IMO comparing apples with oranges. Can you find any company that is selling real packaged chips that is as insenstive to the micro-electronics boot-bust cycle as the net profit margins you have shown for TSMC ? I couldn't.
Besides looking at the net profit of Intel you showed that it has been >10% for more then 10 years which again won't be the case for a lot of micro-electronics companies. And more important for inverstors they have been giving a stable and increasing dividend over those years. So IMO what you have just shown is that if only two companies survive in the micro-electronics world it likely will be Intel and TSMC.
Astilo, thank you for the picture. Looking at it, the SDRAM+NAND memory cost about $14~$15. That's less than half of the processor cost (about $37). Can Mike comment on this?
Does anyone know if Intel supply any their memory products to any smartphones or tablets?
hist78, They clearly stated they bought McAfee to have hybrid security that was a combination of hardware and software. Great idea if you could create a monopoly type product. I don't know what ever happened to Intel's project and haven't heard or read a word on it. I might check it out when I have time if someone doesn't provide an answer.
When I read Intel's reason (as you mentioned) back in 2010, I didn't understand nor agree. In the hardware/software security field, there are several strong and diversified players such as Cisco, Symantec, Trendmicro, Checkpoint and many other. Most of them are doing great jobs. How can Intel approach or change this industry differently from other competitors? Especially in the enterprise market? IMHO, not much.
Is Intel talking about to integrate anti-virus and SPAM filtering into the CPU? It's possible but many people even today can't get MS Word or Excel to run fast enough with Intel CPU. This new type of anti-virus/anti-spam CPU probably won't come soon.
Intel first announced plans to acquire McAfee in August 2010 for $7.7 billion in cash. The chip company paid $48 a share for McAfee, a whopping 60 percent premium for the antivirus software maker.
In that same year (2010), Intel also paid US$1.4B for Infineon's mobile division, about 1/5 of what they paid to get McAfee!
From the amount that Intel spent, it may indicate that Intel felt they will have more business potential in security/anti-virus/SPAM-filtering than mobile products.
McAfee generated about US$2 billion revenue for Intel in 2014 while Intel's Mobile and Communications Group (MCG) brought in much less revenue, $-6m 4Q2014, $1m 3Q2014, $51m 2Q2014, $156m 1Q2014 and lost $4B for the whole 2014.
So where is Intel going from here? A much more diversified company or sticks to semiconductor industry?
Astilo, thank you for the picture. Looking at it, the SDRAM+NAND memory cost about $14~$15. That's less than half of the processor cost (about $37). Can Mike comment on this?
I was thinking more about the profit margin overall. The Apple Ax orders now seem to require you to re-equip the fab and then lose the order for the next generation so you have to try to make something else with the fab. At least memory is a universal market and if you don't get in the iPhone you'll probably get in a PC or something else.
I focused on gross profit margin to give indication of how good Intel would be able to withstand tough times for the short to mid-term. High gross profit margins means a lot of room for cost cutting to increase net profit margin.
Comparing net profit margin of an IDM to a pure play foundry is IMO comparing apples with oranges. Can you find any company that is selling real packaged chips that is as insenstive to the micro-electronics boot-bust cycle as the net profit margins you have shown for TSMC ? I couldn't.
Besides looking at the net profit of Intel you showed that it has been >10% for more then 10 years which again won't be the case for a lot of micro-electronics companies. And more important for investors they have been giving a stable and increasing dividend over those years. So IMO what you have just shown is that if only two companies survive in the micro-electronics world it likely will be Intel and TSMC.
Yes, we can say because Intel's high gross margin, Intel may stand better during market downturn by doing cost cutting. But cost cutting in the rainy days can be very destructive and costly in terms of R&D, manufacturing capability, and morale. If this is the extra fat and can be cut during bad days, why don't they not to grow it to begin with?
I agree that Intel and TSMC are not in the same segment of semiconductor industry. But we have to recognize that many TSMC's customers do compete against Intel. For example, Qualcomm is the market leader in mobile chips and competes against Intel and many other. In 2014 Qualcomm got $26B of revenue with a 28.5% net profit margin. So I can see a problem here: Qualcomm uses TSMC to make chips yet both of them can maintain a high net profit margin (Qualcomm 28.5%, TSMC 34.6%), compare to Intel's 21%.
Although people can argue that Qualcomm makes a lot money from other sources such as licensing. That's true but don't forget Intel has many other products too, for example: McAfee Antivirus and the Custom Foundry Services.
I was thinking more about the profit margin overall. The Apple Ax orders now seem to require you to re-equip the fab and then lose the order for the next generation so you have to try to make something else with the fab. At least memory is a universal market and if you don't get in the iPhone you'll probably get in a PC or something else.
I'm not sure between processors and memory which one has higher profit margin (%). My guess is that processors may have a better margin. But I really need our SemiWiki's gurus to give me some guidance
As far as I know it is processors. Few months ago I heard the claim that the only company making money in memory was Samsung, I do think market has improved since then though. Memory is known to be a low margin business but likely not all ARM processors are high margin either as a lot of these SoCs/microcontrollers chips are sold for a few dollars.
I'm not sure between processors and memory which one has higher profit margin (%). My guess is that processors may have a better margin. But I really need our SemiWiki's gurus to give me some guidance
Sorry I can't give you the actual numbers we got from the horse's mouth but can say it's memories.
But I accept this is not always the case as memory pricing is so volatile but at the moment they are all licking up the cream whereas making Ax processors is no goldmine (though you do end up with a fully debugged fab at the end of it).
Some references on relative pricing: DRAM ($1.20-$3.45 per chip) NAND ($1.70-$3.15)
Intel latest processor price list ($50-$5,000)
Qualcomm chip ASP estimate (very rough): $24
Another serious issue Intel and Microsoft are facing is how to maintain their ecosystem. If Intel or Microsoft's partners can't make meainingful profit, the ecosystem will collapse sooner or later. From the follwong January 2014 Gaurdian's analysis, a PC maker earns $14.87 or a 2.73% profit margin for making a PC. Since then I don't think the situation has improved much. Both Intel and Microsoft can insist they deserve their fat profit margin, but they will find less and less willing partners to work with.
Another serious issue Intel and Microsoft are facing is how to maintain their ecosystem. If Intel or Microsoft's partners can't make meainingful profit, the ecosystem will collapse sooner or later. From the follwong January 2014 Gaurdian's analysis, a PC maker earns $14.87 or a 2.73% profit margin for making a PC. Since then I don't think the situation has improved much. Both Intel and Microsoft can insist they deserve their fat profit margin, but they will find less and less willing partners to work with.
