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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.

3 of 38 comments (clear)

  1. 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.

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

  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.

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    The ______ Agenda
  3. 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