Intel Corp (INTC)

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But surely you aren't saying that "contra-revenue" doesn't count against Intel's net profits, in a manner directly associated with the sale of an individual processor?

No. It is very true that contra-revenue is an expense that subtracts from net profits. However, the accounting here is important and relevant. For one thing, contra-revenue is more of a marketing cost, and not part of the cost-structure of a product. Second, contra-revenue will decrease or be eliminated as the system level inequities go away. For example, a storage device for an Intel SOC should not be fundamentally higher cost than a storage device for an ARM SOC, due simply to the choice of I/O interface. The actual reason is usually tied to the supply chain, or to the individual sub-component availability - both of which improve as the Intel SOC ramps in the market, and more devices can take advantage of these external components. This all means that contra-revenue is not a fixed quantity that is shackled to the design decisions made on a given chip, like Bay Trail, but rather something that can decrease over time, as Bay Trail ramps on the market.

Note that I'm not disputing your "Intel must sell above cost" notion... I'm just saying that "contra-revenue" is an oh so convenient way to sell processors for effectively below cost

Nope again. Contra-revenue is not a part of product cost. Maybe an example would help.

- A competitor with an ARM SOC offers it at a price of $10, but the OEM pays $30 in system components to support that SOC, bringing the total system component cost to $40.

- Intel is offering an SOC with competitive cost structure for the same $10, but their system component costs are $40. They can use contra-revenue to essentially comp the difference, which essentially rebates the OEM for the extra $10 of system component cost - but they cannot offer more contra-revenue than the $10 difference between system costs.

In this way, the total system cost for both Intel and the competitive solution is both $40. If Intel's SOC cost is also $10, then they are already selling at cost, and cannot discount further. But if their cost structure for the SOC is $5, then they can price it lower, down to the cost of the SOC.

Thus, your assertion that contra-revenue allows them to sell below-cost is factually incorrect, as it does not advantage them in pricing for the design win, below the actual cost structure of the device.