Read this clueless analyst's take on Prescott
Wedbush Morgan Securities (INTC, SPCH)
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3 February 2004, 08:46am ET
INTC: Reit Buy - TGT$40; Intel officially launched its much anticipated enhanced P4 architecture (code name Prescott) yesterday. This desktop oriented chip includes minor enhancements such as doubling L2 cache to 1MB, adding 13 new instructions, and supporting the multi-tasking Hyper-Threading technology. The real benefit is the smaller die size 112 mm2 vs 132 mm2 of the previous design despite more transistors, because it is based on 90 nm process. The 90 nm process technology allows Intel to price aggressively and still enjoy excellent gross margins. Ramping of 300 mm production for Prescott also promises a 30% cost reduction, realizable fully in 2005. We are increasing our 2005 EPS estimate from $1.65 to $1.70 because of higher gross margin assumption (65% vs 64%) and slightly lower R&D as Intel is likely to rationalize its very ambitious cellular chipset program. We are maintaining our 2004 EPS estimate of $1.33. Consensus has significantly increased over the past 2-3 months to $1.26 for 2004 and $1.47 for 2005. Our investment thesis remains the same - Intel is benefiting from the consumer PC upgrade cycle starting in 2003 and growth in emerging markets, which are now joined by PC upgrade cycle among developed countries (which tend to favor the better margin notebooks). Intel for the first time in over a decade is leading its rival Advanced Micro Devices (AMD-NR) by 3 years in the transition to 300 mm wafer production, resulting in a cost advantage as much as 30% in 2005/2006.
This guy obviously has no clue on the fact that going from 132mm2 to 112mm2 in combination with 300mm wafers is not going to reduce costs by 30%. As anyone knows that estimate is inaccurate even before the fact that yields in percentage terms get worse with each die shrink. What this guy forgets to mention is how this chip as is typical with Intel is slower per clock than it's predecessor, which was the case when Intel went to P4 from P3. At least then they were able to jump from 1G P3 to 1.3G P4, even though as is the case now, the new Intel can't outperform the old. This time Intel has a new chip with lower IPC and lower clock. AMD on the other hand gets better IPC out of A64/K8 than it did out of Athlon/K7. Intel also is getting pressure now to match AMD with a 64 bit solution in despktop because Dell doesn't want to miss the boat, seeing as AMD A64 is gaining steam along with Opteron which mops the floor with Zeon, and is clearly a smarter upgrade path that Itanium in terms of servers.
