Intel Contra Revenue

[hist78]

There are many ways to measure a company’s capability, market, and financial strength. So I decided to compare the profitability situation between Intel and TSMC. I always though Intel commands a huge profit margin compare to rest of the industry due to their dominant position in x86 processors. I am wrong. From the data I gathered below, Intel's profit margin is actually smaller than I thought and much smaller than TSMC's. The room that allows Intel to make mistakes is much smaller than many people (including me) thought.

[table] style="width: 636px"
|-
| style="width: 169px; height: 20px" | Intel
| style="width: 47px" | 2013
| style="width: 47px" | 2012
| style="width: 47px" | 2011
| style="width: 47px" | 2010
| style="width: 47px" | 2009
| style="width: 47px" | 2008
| style="width: 47px" | 2007
| style="width: 47px" | 2006
| style="width: 47px" | 2005
| style="width: 47px" | 2004
|-
| style="height: 20px" | % Net Income of Revenue
| align="right" | 18.3
| align="right" | 20.6
| align="right" | 24
| align="right" | 26.8
| align="right" | 12.4
| align="right" | 14.1
| align="right" | 18.2
| align="right" | 14.3
| align="right" | 22.3
| align="right" | 22
|-
| style="height: 20px" | % Return on Assets
| align="right" | 10.9
| align="right" | 14.2
| align="right" | 19.3
| align="right" | 19.7
| align="right" | 8.4
| align="right" | 10
| align="right" | 13.4
| align="right" | 10.4
| align="right" | 18
| align="right" | 15.8
|-
| style="height: 20px" | % Return on Equity
| align="right" | 17.6
| align="right" | 22.7
| align="right" | 27.2
| align="right" | 25.6
| align="right" | 10.8
| align="right" | 12.9
| align="right" | 17.6
| align="right" | 13.8
| align="right" | 23.2
| align="right" | 19.7
|-
| style="height: 20px" |
|
|
|
|
|
|
|
|
|
|
|-
| style="height: 20px" | TSMC
| align="right" | 2013
| align="right" | 2012
| align="right" | 2011
| align="right" | 2010
| align="right" | 2009
| align="right" | 2008
| align="right" | 2007
| align="right" | 2006
| align="right" | 2005
| align="right" | 2004
|-
| style="height: 20px" | % Net Income of Revenue
| align="right" | 31.5
| align="right" | 32.8
| align="right" | 31.5
| align="right" | 38.7
| align="right" | 30.2
| align="right" | 30
| align="right" | 34.1
| align="right" | 39.6
| align="right" | 35.1
| align="right" | 35.9
|-
| style="height: 20px" | % Return on Assets
| align="right" | 16.9
| align="right" | 19
| align="right" | 18.2
| align="right" | 23.8
| align="right" | 15.2
| align="right" | 18.3
| align="right" | 19
| align="right" | 22.7
| align="right" | 18.4
| align="right" | 20.4
|-
| style="height: 20px" | % Return on Equity
| align="right" | 23.8
| align="right" | 24.6
| align="right" | 22.6
| align="right" | 29.3
| align="right" | 18
| align="right" | 21.5
| align="right" | 22.1
| align="right" | 26.3
| align="right" | 22.2
| align="right" | 25.4
|-
| style="height: 20px" |
|
|
|
|
|
|
|
|
|
|
<colgroup><col><col span="10"></colgroup>|-
[/table]



Souece: S&P Capital IQ, McGraw Hill Financial


Profit Margin % (Trailing Twelve Months, as of Sep 27, 2014 for Intel, Sep 30, 2014 for TSMC):

[table] style="width: 216px"
|-
| style="width: 169px; height: 20px" |
| align="right" style="width: 47px" | 2014
|-
| style="height: 20px" | Intel
| align="right" | 19.4
|-
| style="height: 20px" | TSMC
| align="right" | 32.7
<colgroup><col><col></colgroup>|-
[/table]




Source: Yahoo Finance

 

[lefty]

That's net profit margin, rather than gross profit margin which is usually quoted?

 

[hist78]

I think to use "net profit" and "net profit margin" is a better way to measure a company's true profitability. As an investor, I really don't care too much about gross profit of a company. Because any additional expense or charge can reduce "gross" profit significantly. Sometimes such reduction can turn a positive gross profit into a financial loss. Thanks.

 

[hist78]

To put the real number into the picture. Intel made $11 billion net profit in 2013 and this number has already considered the $3.2 billion loss from Intel's mobile product division. We haven't reached the end of 2014 and the final number is not set yet. But as many news organizations reported, Intel is very possible to lose $4 billion from their mobile product division in 2014. The trend is not encouraging. On the other hand, using 2013 number as a measure, Intel's loss in mobile products compare to the whole company's net profit is 29% (3.2B/11B), It's very significant and they don't really have too much room to keep doing this kind of thing,

Next year Intel's mobile division will merge into PC division. We won't be able to tell exactly the profit/loss impact from Intel's mobile products. Intel is not trying to hide anything and they explained that the merge is because the difference between PC and mobile products is getting much less every day. But my question is how soon and how many "experts" or "analysts" will start questioning Intel about this risky situation?

 

[hist78]

It's Clover Trail, not Bay Trail. They just are clearing out old stock. At this stage Clover Trail is just land fill.

410605+410670+410621+468421 : Micro Center

Got this from microcenter.com promotion email today. These cheap Windows 8.1 tablets are using Bay Trail Quad-Core CPU. The price are from $59 for a 1GB/16GB 7" tablet to $199 for a 2GB/32GB 8" tablet. They even include one year Microsoft Office 365 Personal subscription (value $69.99 at amazon.com). Again, Microcenter and the manufacturers have to make some money and meaningful money. This price range is almost like buying a high end mouse or keyboard now. This won't happen without Intel's aggressive incentive. How long can Intel keep doing this?


A $89 Logitech Optical Gaming Mouse G400 with High-Precision 3600 DPI Optical Engine
Amazon.com: Logitech Optical Gaming Mouse G400 with High-Precision 3600 DPI Optical Engine: Computers & Accessories

A $199.98 USA Filco Ninja Majestouch-2, Tenkeyless, NKR, Tactile Action, Keyboard FKBN87M/EFB2
http://www.amazon.com/Filco-Majesto...id=1418403691&sr=1-5&keywords=gaming+keyboard

 

[astilo]

This is the chip used in the $59 tablet:

[h=1]Intel® Atom™ Processor Z3735G (2M Cache, up to 1.83 GHz)[/h][table] style="margin: 0px; padding: 0px; border-spacing: 0px; width: 531px; color: rgb(83, 86, 90); font-family: intel-clear, tahoma, helvetica, sans-serif"
|- id="Price1KUnits"
| style="padding: 5px; border: 1px solid rgb(255, 255, 255); width: 307px; background: rgb(230, 234, 238)" | Recommended Customer Price
| style="padding: 5px; border: 1px solid rgb(255, 255, 255); width: 200px; background: none rgb(230, 234, 238)" | TRAY: $17.00
|-
[/table]

 

[hist78]

This is the chip used in the $59 tablet:

[h=1]Intel® Atom™ Processor Z3735G (2M Cache, up to 1.83 GHz)[/h][table] style="margin: 0px; padding: 0px; border-spacing: 0px; width: 531px; color: rgb(83, 86, 90); font-family: intel-clear, tahoma, helvetica, sans-serif"
|- id="Price1KUnits"
| style="padding: 5px; border: 1px solid rgb(255, 255, 255); width: 307px; background: rgb(230, 234, 238)" | Recommended Customer Price
| style="padding: 5px; border: 1px solid rgb(255, 255, 255); width: 200px; background: none rgb(230, 234, 238)" | TRAY: $17.00
|-
[/table]

Assume the import unit cost is $30 (50% of the retail) for the $59 7" Windows 8.1 tablet, not including ocean freight and tariff.

$30 - $17 (Atom processor) = $13

This $13 needs to cover the following cost:

1. 7" Capacitive IPS LCD Touch Screen 1280x800 Display
2. Intel HD Graphics
3. 1GB RAM & 16 Flash Storage
4. Windows 8.1 OS
5. Front and Rear Cameras 2 Megapixel
6. Wi-Fi 802.11b/g/n
7. Bluetooth 4.0
8. G-Sensor
9. Light Sensor
10. Integrated Microphone
11. Rechargeable Lithium Polymer battery
12. 5V/2A 10W Power Adapter
13. Circuit board
14. Assembly labor, material, and equipment
15. Parts and labor of one year warranty
16. Packaging
17. Manufacturer's operation cost (tax, land/warehouse, sales/marketing, transportation, etc.)

$0.80 X 17 = $13.6 (I know $0.80 seems not real for some of the above items)

$13 - $13.6 = -$0.60

Where is the manufacturer's profit?

The number doesn't add up. Intel must have poured a lot additional money into this campaign to make it work.

 

[astilo]

GPU and probably also the RAM are included in the SoC price. Of course Intel is still doing Contra Revenue for the whole 2014. They just want to reach their 40M tablets target. At loss, no doubts.

 

[hist78]

GPU and probably also the RAM are included in the SoC price. Of course Intel is still doing Contra Revenue for the whole 2014. They just want to reach their 40M tablets target. At loss, no doubts.

So let's modify the calculation:

$0.80 X 15 (exclude graphic and memory) = $12

$13 - $12 = $1

So the manufacturer can make $1 profit from each unit. I feel much better now.

BTW, don't ask me why I like to use $0.80 cost for each item. It's just an assumption. Every one can plug in his/her own number to do some analysis.

 

[hist78]

Effective Tax Rate comparison between Intel and TSMC

Source : S&P Capital IQ
NM: Not Meaningful

[table] style="width: 691px"
|-
| style="width: 51px; height: 20px" |
| style="width: 64px" | 2013
| style="width: 64px" | 2012
| style="width: 64px" | 2011
| style="width: 64px" | 2010
| style="width: 64px" | 2009
| style="width: 64px" | 2008
| style="width: 64px" | 2007
| style="width: 64px" | 2006
| style="width: 64px" | 2005
| style="width: 64px" | 2004
|-
| style="height: 20px" | Intel
| 23.70%
| 26.00%
| 27.20%
| 28.60%
| 23.40%
| 31.20%
| 23.90%
| 28.60%
| 31.30%
| 27.80%
|-
| style="height: 20px" | TSMC
| 12.80%
| 8.59%
| 7.37%
| 4.69%
| 6.28%
| 9.82%
| 9.60%
| 5.83%
| 0.67%
| NM
<colgroup><col><col span="10"></colgroup>|-
[/table]

 

[hist78]

Intel reported their earning last week. A big question for me but I haven't seen an analyst to ask is: how much money did Intel spend on the "Contra Revenue" in the year of 2014?

For 2014 Intel "sold" (or give) [FONT=Verdana, Arial, sans-serif]46 million units of mobile chips used on the tablets. 4Q2014 Intel mobile group revenue is negative $6 millions vs 3Q2014 of positive $1 millions. [/FONT]$6 millions is definitely not enough to run a "Contra Revenue" in such scale. Can one of the smart guys here in Semiwiki come out a number? Thanks.[FONT=Verdana, Arial, sans-serif]


[/FONT]

 

[hist78]

Updated comparison for Net Profit Margin between Intel and TSMC:

[table] style="width: 696px"
<colgroup><col><col><col><col span="9"></colgroup>|-
| style="height: 20px; width: 169px" | % Net Income of Revenue
| style="width: 51px" | 2014
| style="width: 62px" | 2013
| style="width: 47px" | 2012
| style="width: 47px" | 2011
| style="width: 47px" | 2010
| style="width: 47px" | 2009
| style="width: 47px" | 2008
| style="width: 47px" | 2007
| style="width: 47px" | 2006
| style="width: 47px" | 2005
| style="width: 47px" | 2004
|-
| style="height: 20px" | Intel
| align="right" | 21
| align="right" | 18.3
| align="right" | 20.6
| align="right" | 24
| align="right" | 26.8
| align="right" | 12.4
| align="right" | 14.1
| align="right" | 18.2
| align="right" | 14.3
| align="right" | 22.3
| align="right" | 22
|-
| style="height: 20px" | TSMC
| align="right" | 34.6
| align="right" | 31.5
| align="right" | 32.8
| align="right" | 31.5
| align="right" | 38.7
| align="right" | 30.2
| align="right" | 30
| align="right" | 34.1
| align="right" | 39.6
| align="right" | 35.1
| align="right" | 35.9
|-
[/table]


Souece: S&P Capital IQ, McGraw Hill Financial