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Friday, April 28, 2017 5:38:24 AM
Figures. Good quarter, stock goes down...same old, same old.
Someone is trying to estimate the impact of Ryzen to Intel's financials:
Intel (NASDAQ:INTC) reported $14.8 billion in revenue for 2017 Q1, an increase of 8% y/y. Gross margin improved from last year at 61.8% compared to 59.3%. Operating income was $3.6 billion, up 40% y/y, and net income was $3.0 billion, up 45% y/y.
Intel was even able to point to some strength in its Client Computing Group (CCG) and Data Center Group (DCG), with each posting 6% y/y revenue gains. In terms of the key Platform revenue metric, CCG Platform revenue was $7.397 billion, up 2.7% y/y, and DCG Platform revenue was $3.879, up 4.6% y/y.
Operating income for CCG was up 60% y/y to $3.031 billion, while operating income for DCG was down 16% y/y to $1.487 billion. Analysts were curious about the decline in operating margin for DCG and asked about this during the conference call. Intel management pointed out that much of this was due to higher-cost allocations as DCG becomes "first in line" for its future process nodes. However, the company continues to guide to a long term DCG operating margin of 40-45%.
Since Advanced Micro Devices (NASDAQ:AMD) has yet to begin deliveries of its Naples server processors, it was to be expected that there was no discernible impact on DCG. DCG platform unit volumes only declined 1% y/y, while ASP rose 6% y/y.
With the launch of the long awaited Ryzen 7 at the beginning of March, one would expect to see some impact on Intel's CCG business. The revenue impact, if any, may be obscured by Intel's current modem sales to Apple (NASDAQ:AAPL), which were non-existent in 2016 Q1.
Overall CCG Platform unit shipments declined by 4% y/y, but ASP was up by 7%. Perhaps the most telling statistic is the 7% y/y decline in Desktop platforms, although ASPs still rose by 2% y/y.
Intel Claims Little Impact from AMD Competition
When asked about the competitive impact of AMD during the conference call, Intel management claimed they hadn't "seen anything unusual", but it's likely that at least some of the 7% Desktop unit decline was due to the impact of Ryzen.
Intel's decline is somewhat ambiguous, because the desktop has been on the decline for years and is a shrinking part of the overall PC market, as this chart from Statista makes clear:
Counterbalancing this trend is the fact that the PC market grew slightly by 0.6% y/y for 2017 Q1, according to IDC. This suggests that the desktop component of the PC market would have been flat y/y.
It's also interesting to compare with the situation in 2016 Q1. According to IDC, global PC shipments were down 11.5% y/y in 2016 Q1. Despite the overall drop, Intel reported only a 4% y/y drop in Desktop platform unit shipments, while the Desktop ASP rose by 6% y/y.
The decline in Desktop platform units implies about a 5% y/y revenue decline for the Desktop platform. Assuming that Desktop platforms generate about 40% of CCG platform revenue (as a rough estimate from the Statista data), this implies that Intel is down about $150 million in Desktop platform revenue. Some, or all, of this may have been transferred to AMD in the form of Ryzen sales.
The consensus revenue estimate from Yahoo Finance for AMD this quarter is $984.4 million, an increase of 18% y/y or $152.4 million. So there is some apparent consistency between analysts' expectations and the notion that the company took desktop sales and share away from Intel. Clearly there are a lot of uncertainties, such as the question of how much AMD gained in revenue from the Intel desktop decline and how much GPU or console seasonal declines might offset this gain.
From Intel's perspective, the impact is hardly noticeable. The company is much more concerned about growing its DCG, modem, IoT, autonomous vehicle, and storage businesses.
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