4 ms·

I was and still remain pretty confused. From an outsider's perspective, my thought was Intel had incredibly massive profit margins pre Ryzen. So my thought was

by mcny 5y ago

I was and still remain pretty confused. From an outsider's perspective, my thought was Intel had incredibly massive profit margins pre Ryzen. So my thought was all Intel has to do is slash margins and it can continue to sell chips. Is it not that simple? I mean there has to be some price point at which whatever Intel wants to sell is what customers want to buy, right? In the mid to long term, Intel continues to innovate and eventually will get to the smaller numbers 7nm, 5nm, ... Is the margin that Intel has not as big as I had imagined? Is the idea of reduced margins so terrible that the money behind Intel (the stock market?) would rather let Intel die than accept a significantly lower rate of return? I know I'm missing something here and I don't know what it is...

BobbyJo 5y ago
> So my thought was all Intel has to do is slash margins and it can continue to sell chips. Is it not that simple? "Can't they just make less money?" No. They can't. Not without looking like they're dying, which will cause or hasten said death.
- pdimitar 5y ago
  At one point they'll have to face the "choose the lesser evil" situation so IMO doing it sooner rather than later can help them. But hey, we'll wait and see.
- xboxnolifes 5y ago
  The alternative is they still make less money, but now also have fewer sales to report.
samspenc 5y ago
This is what I thought a few months as well and bought INTC (Intel stock) on the dip ... and it kept dipping. This is my guess now: yes, Intel is a massively profitable company. But I think what the market is factoring in is that it missed the technology shift to smaller chips (5nm?) which its competitors (Apple, TSMC, etc) are able to do. Further, Apple & ARM are eating into the mobile space, and AMD and NVidia are biting away at Intel's data center share. I think without a major tech break-through, Intel looks like it might miss this next semiconductor shift, and that's why the market is selling because it is starting to look like an also-ran at this point. Think IBM.
- gigatexal 5y ago
  Yeah I don’t see a break out for the stock anytime soon. I, too, just on existing company fundamentals bought a large (for me) amount of shares. I should have bought some of their debt instead because they continue to print money it’s just they’re still behind in many areas so I don’t see the stock multiple changing anytime soon.
- pclmulqdq 5y ago
  Intel is a value stock at this point. I have been loading up on shares, but it looks like the big money isn't interested in companies that make a lot, and more interested in "future potential for growth." I think some big hedge funds must be betting on intel failing.
  - lotsofpulp 5y ago
    > but it looks like the big money isn't interested in companies that make a lot, and more interested in "future potential for growth." Why not both? Intel has been stuck at $20B net income for years. AMZN went from $10B to $20B to likely $26B in the same years. AAPL went from $55B to $95B. MSFT went from $40B to $61B to $68B. Alphabet from $30B to $40B to $70B. FB from $22B to $30B to $40B. Nvidia went from $4B to $8B and Qualcomm from $5B to $10B. AMD from $0.3B to $4B. Does not look good when companies above and below you are greatly able to increase earnings and you are sitting still.
  - dboreham 5y ago
    "Value Trap"
  - deleted 5y ago
    [deleted]
  - sorry_outta_gas 5y ago
    The worry is that they aren't competitive and the 'big money' is due to inertia which is slowing down.
- chj 5y ago
  Intel is heavily investing now, meaning less profits in the coming years. That may put off a lot of existing investors.
conjecTech 5y ago
Part of the missing picture in the datacenter market is TCO(total cost of ownership). The margin Intel used to have was driven by what it would cost you to recreate the performance they could provide by other means. If Intel had a 20% performance lead at the same power, you'd have to deploy 25% more of the closest competitor to match it. That's 25% more racks, space, electricity, heating, etc. In the alternative, the CPU might reasonably represent 1/5 to 1/3 of total costs. How much higher could Intel price their chip while still being competitive from the TCO perspective? The answer is nearly 2x on a per unit basis using those numbers. That calculation was relatively easy when all of the chips had very similar number of cores, and the advantage was squarely in single-core performance. It's slightly harder now, in a world where there is considerable divergence in things like number of cores and energy efficiency in addition to single core performance. But the implications of those equations have obviously swung strongly against Intel for large parts of the market. There are AMD/arm chips that are probably 2x or more the current multi-core performance of the Intel chips that were at similar prices last year. Intel has advantages around lock-in and brand, but the economic incentive of transition now can be quite staggering, and people are waking up to it. Whether Intel will be able to make chips that would be competitive in that market, even with no margin, is yet to be seen.
ksec 5y ago
>Is the idea of reduced margins That is the different between a "manager" and a leader / entrepreneur. Most CEOs are at best half decent managers. It is funny, the person with the idea of reduced margins, invest to innovate and compete would never have risen to the top of the organisation. For all sort of political reasons and shareholder values. I think this is the number one reason why startup matures to enterprise and fade over a long period of time. Without the vision from founders that make these bold strategic decisions.
david38 5y ago
Intel gave a lot of money back to their stockholders.
- PixyMisa 5y ago
  Many of whom just happened to be senior executives or board members.

by mcny 5y ago

BobbyJo 5y ago

> So my thought was all Intel has to do is slash margins and it can continue to sell chips. Is it not that simple? "Can't they just make less money?" No. They can't. Not without looking like they're dying, which will cause or hasten said death.

pdimitar 5y ago
At one point they'll have to face the "choose the lesser evil" situation so IMO doing it sooner rather than later can help them. But hey, we'll wait and see.
xboxnolifes 5y ago
The alternative is they still make less money, but now also have fewer sales to report.

samspenc 5y ago

This is what I thought a few months as well and bought INTC (Intel stock) on the dip ... and it kept dipping. This is my guess now: yes, Intel is a massively profitable company. But I think what the market is factoring in is that it missed the technology shift to smaller chips (5nm?) which its competitors (Apple, TSMC, etc) are able to do. Further, Apple & ARM are eating into the mobile space, and AMD and NVidia are biting away at Intel's data center share. I think without a major tech break-through, Intel looks like it might miss this next semiconductor shift, and that's why the market is selling because it is starting to look like an also-ran at this point. Think IBM.

gigatexal 5y ago
Yeah I don’t see a break out for the stock anytime soon. I, too, just on existing company fundamentals bought a large (for me) amount of shares. I should have bought some of their debt instead because they continue to print money it’s just they’re still behind in many areas so I don’t see the stock multiple changing anytime soon.
pclmulqdq 5y ago
Intel is a value stock at this point. I have been loading up on shares, but it looks like the big money isn't interested in companies that make a lot, and more interested in "future potential for growth." I think some big hedge funds must be betting on intel failing.
- lotsofpulp 5y ago
  > but it looks like the big money isn't interested in companies that make a lot, and more interested in "future potential for growth." Why not both? Intel has been stuck at $20B net income for years. AMZN went from $10B to $20B to likely $26B in the same years. AAPL went from $55B to $95B. MSFT went from $40B to $61B to $68B. Alphabet from $30B to $40B to $70B. FB from $22B to $30B to $40B. Nvidia went from $4B to $8B and Qualcomm from $5B to $10B. AMD from $0.3B to $4B. Does not look good when companies above and below you are greatly able to increase earnings and you are sitting still.
- dboreham 5y ago
  "Value Trap"
- deleted 5y ago
  [deleted]
- sorry_outta_gas 5y ago
  The worry is that they aren't competitive and the 'big money' is due to inertia which is slowing down.
chj 5y ago
Intel is heavily investing now, meaning less profits in the coming years. That may put off a lot of existing investors.

conjecTech 5y ago

Part of the missing picture in the datacenter market is TCO(total cost of ownership). The margin Intel used to have was driven by what it would cost you to recreate the performance they could provide by other means. If Intel had a 20% performance lead at the same power, you'd have to deploy 25% more of the closest competitor to match it. That's 25% more racks, space, electricity, heating, etc. In the alternative, the CPU might reasonably represent 1/5 to 1/3 of total costs. How much higher could Intel price their chip while still being competitive from the TCO perspective? The answer is nearly 2x on a per unit basis using those numbers. That calculation was relatively easy when all of the chips had very similar number of cores, and the advantage was squarely in single-core performance. It's slightly harder now, in a world where there is considerable divergence in things like number of cores and energy efficiency in addition to single core performance. But the implications of those equations have obviously swung strongly against Intel for large parts of the market. There are AMD/arm chips that are probably 2x or more the current multi-core performance of the Intel chips that were at similar prices last year. Intel has advantages around lock-in and brand, but the economic incentive of transition now can be quite staggering, and people are waking up to it. Whether Intel will be able to make chips that would be competitive in that market, even with no margin, is yet to be seen.

ksec 5y ago

>Is the idea of reduced margins That is the different between a "manager" and a leader / entrepreneur. Most CEOs are at best half decent managers. It is funny, the person with the idea of reduced margins, invest to innovate and compete would never have risen to the top of the organisation. For all sort of political reasons and shareholder values. I think this is the number one reason why startup matures to enterprise and fade over a long period of time. Without the vision from founders that make these bold strategic decisions.

david38 5y ago

Intel gave a lot of money back to their stockholders.

PixyMisa 5y ago
Many of whom just happened to be senior executives or board members.