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Is Intel Making Too Many Chips?

Posted by Hemos on from the persih-the-thought dept.

editingwhiz writes "IT Manager's Journal business columnist Melanie Hollands is confused about Intel's mid-quarter financial update. The world's leading chipmaker warns that it has a major overage in inventory resulting in a gross margin reduction because its fabrication process is too darn efficient."(The gross margin reduction) is due to better-than-expected manufacturing efficiencies ... which have, in turn, resulted in more chips than needed," the company said. Huh? (ITMJ is part of the OSTG network.)" Actually, it makes sense - if you make too many chips that you don't sell, you increase costs, but without any increase in revenue.

38 comments

  1. My Dog Surrenders by Anonymous Coward · · Score: 0

    What the hell? I don't care what the ITJM or OTSG networks are and the blurb made even less sense than the actual liked article did. I don't even understand what is supposed to be so confusing anyway. It's good to be efficient, but not efficient *AND* swamped with too much inventory.

  2. Efficiency? by Ratso+Baggins · · Score: 3, Interesting

    Yeah sure, I haven't baught for myself nor spec'd for clients, an intel in years now (since 1999). I expect it more because they're selling less overall. AMD seem to be slowly but surely walking away with the market.

    --

    --
    "we live in a post-ideological world..." - Billy Bragg.

    1. Re:Efficiency? by Anonymous Coward · · Score: 0

      You know, this entire story is just a troll for idiots like yourself to come out of the woodwork with your misinformed AMD IS TEH BESTEREST comments and get modded up by your fellow fanboy fags. Try reading the article, or at least the other comments first.

  3. I'm confused about Hemo's analysis by ComputerSlicer23 · · Score: 3, Insightful
    Uhhh, if you make a run of parts and 300 good parts come off of it instead of 200. Just throw 100 of the good ones away, and the problem is solved. Sure it means you have more of them to put thru the rest of the processing, but I'm guessing increasing the number of good wafers is an easy problem to have.

    This sounds a lot more like an accounting anomoly (failed manufacturing costs are probably an expense, where dumping good chips have to be accounted for as unsold inventory which should go into the "cost of sale" if my guess is correct). Expenses are excluded, but cost of sale is included in the gross margin calculation. If that's the case, it's a case of the weirdness of accounting rules. The only other thing I can think of is if they are lowering the price of the chips to move the supplies they have.

    Kirby

    1. Re:I'm confused about Hemo's analysis by rritterson · · Score: 1

      Uhhh, if you make a run of parts and 300 good parts come off of it instead of 200. Just throw 100 of the good ones away, and the problem is solved. Sure it means you have more of them to put thru the rest of the processing, but I'm guessing increasing the number of good wafers is an easy problem to have.

      Exactly. Or, you could just do fewer runs later in the quarter! They must have a target for the number of chips they should produce. Once they hit those targets, they should shift to more R&D, etc, instead of just churning out chips.

      I wonder if, perhaps, Intel used to be able to sell just about every chip it was able to make, so they just made as many as possible. Now they can't do that.

      --
      -Ryan
      AUWYHSTOT (Acronyms are Useless When You Have to Spell Them Out Too)
    2. Re:I'm confused about Hemo's analysis by eht · · Score: 1

      Why test all of them? When you have your run of 200 good ones, just stop testing the rest and throw the other 100 away then and there. Don't even worry if they're good or not.

    3. Re:I'm confused about Hemo's analysis by Webmonger · · Score: 1

      Or destroy half the cache, and call it a Celeron.
      I bet Intel doesn't really care how much a Celeron costs, anyway.

    4. Re:I'm confused about Hemo's analysis by Anonymous Coward · · Score: 0

      Problem is that there's hardly any demand for crippled Celerons -- the regular chips are so cheap it only makes a tiny dent in system price. I don't even think Dell bothers to sell them anymore. And AMD pretty much owns the "Total Piece of Crap" segment anyways.

  4. question to hemos... by grammar+nazi · · Score: 0, Offtopic
    From the posting:
    "Actually, it makes senses - if you make too many chips that you don't sale, you increase costs, without the increases in revenue."
    Hemos, please forgive the grammar nazi for his ignorance: But enlighten me as to why you chose the verb "sale". I would have been naive and used "sell" and left out the deeper meaning that you are eluding to with "sale". Please enlighten a gammar nazi.
    --

    Keeping /. free of grammatical errors for ~5 years.
    1. Re:question to hemos... by Anonymous Coward · · Score: 0
      Keeping /. free of grammatical errors for ~5 years.

      You sure have done a pretty lousy job of it!

    2. Re:question to hemos... by Anonymous Coward · · Score: 0

      I would rather have an explanation of what the "persih-the-thought dept." is.

  5. Reduce the Price, obviously by VernonNemitz · · Score: 2, Insightful

    Practically all the reviews show that AMD chips of comparable type defeat Intel's chips. And Intel's cost more. Duh! Perhaps Intel should consider a larger-quantity order-size than a mere 1000, or even 10,000 -- and reduce the price accordingly.

    1. Re:Reduce the Price, obviously by MBCook · · Score: 1
      Good luck. Intel is sneekily raising prices on people. What's even worse is that AMD tries to tie their prices to Intel's, so unless the break with tradition (and I hope they do), they will technically raise prices too.

      Now I should note that they aren't "raising" prices in that everything will cost more. Instead, the next time they release a processor, instead of putting it at the top price point and moving everything else down, they will introduce a new higher price point for it, and everything else stays the same. Very sneeky.

      Check it out at Overclockers.com

      --
      Comment forecast: Bits of genius surrounded by a sea of mediocrity.
    2. Re:Reduce the Price, obviously by Anonymous Coward · · Score: 0

      Interesting ... AMD's stated strategy is to increase price and margins, so they'll happily go along with this.

      The thing is that AMD beats Intel on the highend. But if Intel/AMD consipire to keep the high-end mega-expensive, then Intel wins because nobody finds out that the highend P4s are poor, and AMD wins because they can make a profit for once.

      In other words, just because Intel + AMD had a price war for the last 5 years didn't mean the goodtimes would last forever.

    3. Re:Reduce the Price, obviously by MarsDefenseMinister · · Score: 1

      If Intel can raise their prices, and people will pay them, what's the problem. Do you expect a company to give away the product for free?

      You say it's "sneeky" [SIC] but it's Capitalism. Do you have something against making a profit?

      --
      No weapon in the arsenals of the world is so formidable as the will and moral courage of free men.-Ronald Reagan
    4. Re:Reduce the Price, obviously by Marxist+Hacker+42 · · Score: 1

      Um, RTFA. People AREN'T buying them, there exists a huge oversupply in the warehouses. Capitalism demands that they should lower prices, cut production, or both in this situation.

      --
      SJW: a person who perceives an injustice, and while correcting it, commits a greater injustice.
    5. Re:Reduce the Price, obviously by MarsDefenseMinister · · Score: 1

      Sure I agree, but the original (clueless) author seems to have the attitude that if Intel isn't giving away their product for free, they are evil.

      --
      No weapon in the arsenals of the world is so formidable as the will and moral courage of free men.-Ronald Reagan
    6. Re:Reduce the Price, obviously by Marxist+Hacker+42 · · Score: 1

      That alone to a THINKING socialist wouldn't be evil- not giving it away for cost+ is evil, but is practiced by every single corporation in the world that has any sort of a lock on patents or an oligarchy in the market. Which makes the market itself evil for not setting prices at a fixed cost+ (or, in old Guild Economy terms, a Just Price for a Just Wage). Supply and demand is always inherantly injust to somebody- sometimes to the consumer when demand is high and supply is low, sometimes to the company when supply is high and demand is low (as in the case at this point)- and sometimes, very rarely, to the point that cost- becomes the price. A rational, logic based economy would not allow such things to happen; but the free market is anything but rational.

      --
      SJW: a person who perceives an injustice, and while correcting it, commits a greater injustice.
    7. Re:Reduce the Price, obviously by MarsDefenseMinister · · Score: 1

      Good, except that I disagree that there is anything such as a free market. As I read recently, all markets are constructed entities. Even the SEC and the apparatus surrounding stock exchanges is about 1000 pages of rules dictating how the market works. A free market is conceptually a market without rules at all, except those that arise like forces of nature.

      --
      No weapon in the arsenals of the world is so formidable as the will and moral courage of free men.-Ronald Reagan
    8. Re:Reduce the Price, obviously by Marxist+Hacker+42 · · Score: 1

      True enough- and I personally rather like the idea of a truly free market. I just don't see how to get there, even starting from scratch. Any given market will eventually have a core of people setting the rules through pure economic force. In every evolutionary system, parasites will arise to fill niches left uncovered.

      So the answer is to NOT let the system be evolutionary to begin with.

      --
      SJW: a person who perceives an injustice, and while correcting it, commits a greater injustice.
  6. They're a business by Stevyn · · Score: 1

    I'm sure they know what they're doing. Maybe they're hedging for when costs of production go up. If oil goes up unexpectedly, so does costs of production. Maybe it's cheaper to store excess chips now than pay higher costs of production later. Any business who's been as successful and around as long as they have probably knows what they're doing.

    1. Re:They're a business by Anonymous Coward · · Score: 0

      That's what stupid investors said about:
      K-mart
      Enron
      US Steel
      and on
      and on
      and on

    2. Re:They're a business by cgenman · · Score: 3, Interesting

      Yes, like releasing a budget line of chips that are more powerful and cheaper than the premium line of chips you sell. Intel would never do something that dumb. Or releasing a next-generation chipset that is actually slower than the current generation due to listening to their marketing department over their engineering department. Or, for that matter, release a chip with logic deficiencies that has to be recalled. Intel has been around long enough that they know what they're doing.

      No chip company as wise as Intel would launch into the low-price consumer products arena with an ill-concieved sound recorder and a crappy video camera, both of which looked like something fisher price would reject. Intel could never fail if it decided to, say, dominate the market for graphics chipsets. They must know their limitations as a company. Once Intel took control of a system, it would maneuver deftly to keep it instead of, say, losing it to an IBM developed Power PC chip.

      --
      The ______ Agenda
  7. Or... by ChowyChow · · Score: 1

    Or kinda like NASA having a bunch of rovers doing double overtime.

    Overestimating is just as bad underestimating when you look at the big financial picture.

    At least this will give Intel some motivation to actually invent again and slow the innovation.

  8. This reminds me by Anonymous Coward · · Score: 1, Funny

    Of how W explained our problems in Iraq by saying we won too fast.

    1. Re:This reminds me by Anonymous Coward · · Score: 0

      "Of how W explained our problems in Iraq by saying we won too fast. "

      You mean people just scoffed at the statement because they didn't like who was saying it? Yeah, it reminded me of that, too.

  9. It's high *yield* that's the problem! by psyconaut · · Score: 3, Interesting

    "Actually, it makes senses - if you make too many chips that you don't sale, you increase costs, without the increases in revenue."

    No, it's not that they're making too many. It's that the number of good pieces of silicon per wafer is higher than expected.

    Why does this affect financials? It's because you account for unsold inventory on your financial statements.

    Why not produce less? Because you spend years on R&D and then months setting up production, and it's like turning a super-tanker around -- once you give the word, it takes quite a while for the machine (pun intended) to stop.

    As for throwing chips away -- you'd have to take an inventory write-off. You can't just pretend you never made them.

    -psy

    1. Re:It's high *yield* that's the problem! by chipace · · Score: 1

      The scrap is already allocated for... they *can* just throw it away.

      There's two choices (1) Let the extra wafers sit in inventory (with the expectation that they will never be used) (2) Go through the extra expense of building pgas and release it into pga inventory

      I would throw them away if there was no expectation for them to be used.

    2. Re:It's high *yield* that's the problem! by psyconaut · · Score: 1

      Do you understand corporate accounting? You can't "just throw it away" because it becomes inventory. If you throw it away, you have to take an inventory write-down.

      It doesn't matter that extra efficiency was what contributed to more inventory. Nor the fixed cost of manufacturing. It's purely an accounting problem that arises from the engineering and manufacturing group doing a better than expected job.

      Perverse, I know. But look at what Atari had to do back in the day (write-down inventory and then PAY for it to be burried in the desert).

      -psy

    3. Re:It's high *yield* that's the problem! by mabhatter654 · · Score: 1

      Why do you think they've had a 2.4 GHz chip for nearly 3 years now!!! They can't just throw them away because finished chips are still worth more than their weight in gold! but they can't just drop the prices to move chips either... that ruins the market for the future when you have to have prices back up. Intel wants to charge a little more each year instead of always the same...if they chicken out now and drop prices to move short term inventory they ruin the gradual price rising scheme...people will just wait for another chip sale!! Of course they can't release a NEW chip in these conditions either [until they clear inventory]. so that leaves them vaunerable to AMD moving in to one-up them with something new they can't market yet. It explains why the industry has been so stalled for the last 2.5-3 years now..there's no reason for 4GHZ+ chips when they can't sell the ones they already got.. but hey, it's good for business because it provides a level foundation to build from...much like 1999 and the P2/P3/CEL BX motherboards did.

  10. Re:fp by Anonymous Coward · · Score: 0

    yes, yes you are better. As proved by the fact you have nothing else to do but bang refresh and gleefully put "fp" as soon as the story goes live. Man I wish I had your exciting life.

  11. Fact: Companies buy Intel by Anonymous Coward · · Score: 0

    When you have thousands, nay millions of dollars on the line, is some Fortune 1000 going to risk a new rollout on the word of some pimple faced AMD fanboi? Fuck no. Anyone with an MBA thats worth the paper it's printed on will only trust the most reliable, and ironically, cheapest (at present) solution to their IT purchases. In 7+ years of IT consulting I have yet to see a Crapteron ZP 3900+ sitting under a desk, let alone anywhere near a server room; it just doesn't happen.

    Intel overestimated corperate purchases for the quarter, as soon as it pick's up again, this story will be moot. Nothing to see here, move along.

  12. In the words of an old manager of mine... by HotNeedleOfInquiry · · Score: 1

    "It's hard to fuck up a monopoly, but we're doing it"

    --
    "Eve of Destruction", it's not just for old hippies anymore...
  13. Software disable cache sell in Asia by Deliveranc3 · · Score: 1

    Make them unusable in North America (64k cache anyone hmm?)

    It's dirty when supply has nothing to do with cost...

  14. Duopoly? by Anonymous Coward · · Score: 0

    It been a while since school but, don't monopolies have diminishing marginal return on increased production in a limited market place.

    Couldn't they get around this by using the chips in other markets, like Intel powered cars?

  15. Something to add by ehiris · · Score: 1

    if you make too many chips that you don't sell, you increase costs, but without any increase in revenue.

    You increase operational expense without increasing sales throughput but you are also reducing cash flow.

    Cash flow is what keeps a company alive.