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Intel and AMD 1Q 2007 Results; What Does It Mean After The Smoke Has Cleared?

Last week Intel and AMD reported their 1Q 2007 financial results which were widely covered. What is the significance of these results and what does it portend for the coming year and beyond?

A brief review

Intel reported corporate revenues of $8.852 B, down 9% q to q and down 1% y-over y. The MPU revenues were $6.0 B, down 8% q to q and down 4% y-over-y. The company attributed the drop to lower unit shipments, which was expected for the seasonality of the PC market. Intel noted that the ASPs for desktop and mobile were flat, but overall ASPs for servers were lower due to a mix of more low-cost single and dual processor systems.

Things were tougher at AMD. The company reported total revenues of $1.233 B down 30% q to q and 7% y-over-y. AMD now includes revenues from ATI which was acquired during 2006, so the drop for AMD’s MPU business is more significant. The computational products group (MPU and chipsets) had revenues of $918 million, compared to previous quarter of $1,486 (some ATI business) and $1,337 in 1Q06 prior to the ATI acquisition. Semico estimates that AMD’s MPU revenues in 1Q07 were about $750 million. This is a drop of 45% q-to-q and a drop of 44% y-over-y. AMD attributed this to both a drop in unit shipments and a drop in ASPs.

Semico Spin

Clearly it was bloody competition between AMD and Intel in 1Q07. Overall Intel regained a good deal of market share that had eroded during 2006. Ironically, AMD noted that while its total MPU shipments were down, its mobile MPU shipments and sales were up y-over-y. AMD had difficulties in desktop and servers. Since the overall MPU market and PC market declined in 1Q07, AMD’s position in mobile actually improved.

AMD did well in 2006 for a number of reasons. In late 2005 Intel had misread the market for the type of chipsets that would be in demand for the low-cost desktop PC. This opened up a window of opportunity for AMD. At the same time AMD made technical advances for mobile and server MPUs. The company leveraged its desktop gains in these segments. Intel was slow to respond on price and performance for server class MPUs.

However, by the end of 2006, Intel had ramped up 65nm while AMD was just getting its first product at that node out the door. Intel had made several technical improvements and caught AMD. Intel was able to uses its manufacturing prowess to compete on price.

Will the price war continue? Semico does not believe so. Intel has made its gains, but there has to be a balance between market share and profits. The company noted that its margins had improved in 1Q07 and stated in its outlook that one objective is to continue to improve margins. As long as Intel is able to maintain a technical advantage this will keep aggressive pricing in check. Intel will start production on 45nm later this year.

Semico expects to see improvements from AMD throughout 2007 and into 2008. The company should be ramping up its 65nm production. New products, like the Barecelona MPU, will launch in 2007. However, we will see Intel answer these as well with its own improvements.

The 1Q07 results for the overall MPU market is close to what Semico had expected. There is still some softness in the market. Along with the seasonal pattern for PC sales, 2Q07 is likely to decline slightly. MPU ASPs will erode, but this will likely bottom out in 2Q07. New products from both Intel and AMD, along with higher growth rates for mobile and server MPUs, will lead to growing ASPs in the second half of 2007.

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