The Unix Guardian--Intel Is Back on Track in Q3, AMD Is Fighting to Get There

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Volume 4, Number 39 -- October 25, 2007

Intel Is Back on Track in Q3, AMD Is Fighting to Get There

Published: October 25, 2007

by Timothy Prickett Morgan

The two engines of the X64 processor market, Intel and its long-time upstart rival, Advanced Micro Devices, reported their financial results for the third quarter. Sales at both companies were up dramatically, which put Intel back on a profitable footing. But AMD is in a price war with Intel, and delays in its "Barcelona" quad-core Opteron processors and costs associated with its acquisition of graphics chip maker ATI pushed the company to a loss in the quarter.

A resurgent Intel is obviously quite pleased to be back in the driver's seat in the X64 space, much as it was in the X86 processor market before AMD came along four years ago and ruined everything with superior Opteron processors, with their fancy schmancy 64-bit memory addressing, HyperTransport interconnect, and inherently multicore architecture. Having revamped with the Core architecture and blunted the substantial attack by AMD on its laptop, desktop, and server processor businesses, the third quarter of 2007 can be summed up with one simple image: Intel rubbing it in and AMD having to sit there and take it--for now. For if any law holds as true as Moore's Law in the chip business, it is that all vendors go off the rails every now and again.

In the third quarter, Intel broke through its upwardly revised guidance from early September and booked sales of $10.1 billion, up 15 percent. The company had an operating income of $2.2 billion, up 64 percent, and a net income of $1.9 billion, up 43 percent. Earnings per share of 31 cents went up 41 percent from the year-ago quarter. Intel was helped in the net income department by divestitures to the tune of $129 million in the quarter, which certainly helped a little.

Intel said that microprocessor unit sales hit a new record, but that average selling prices were flat. The company said that it shipped more than 2 million quad-core processors in the third quarter, and has put more than 20 quad-core SKUs into the field. Overall, chipset and flash memory also set shipment records in the third quarter, but motherboard units shrank. Intel's Digital Enterprise Group, which makes processors and chipsets for servers and PCs, had microprocessor sales of $3.88 billion, up 10.2 percent, with chipset and motherboard revenue dropping 7.1 percent to $1.32 billion. Intel's Mobility Group, which does technology for laptops and other handheld devices, had microprocessor sales of $2.83 billion, up 26.5 percent, and chipset sales of $1.14 billion, up 40.8 percent.

Clearly, the PC market is in a shift away from desktops and toward laptops, and Intel, like the PC makers, is benefiting from this churn. Similarly, Intel is benefiting from churn in the datacenter as companies upgrade to denser, cooler, 64-bit machinery. But sooner or later, everyone who wants a laptop has a laptop, everyone who wants smaller, cooler servers has them, and this becomes a replacement business, not an upgrade wave. But that time is not yet here. Intel expects a pretty good fourth quarter, with sales in the range of $10.5 billion to $11.1 billion.

Over at AMD, sales were also up strongly, increasing by 18 percent to $1.63 billion. But AMD reported an operating loss of $226 million and a net loss of $396 million, compared to a profit of $136 million in the year ago quarter. About $120 million of that $396 million was due to charges from the ATI acquisition, the disposal of the Spanion memory business, and other charges. Net loss per share came to 71 cents in the quarter, compared to a gain of 28 cents per share a year ago. For the nine months ended in 2007, AMD's sales have rose by 9.5 percent to $4.24 billion, but the company has booked $1.61 billion in losses. To say that AMD shareholders are unhappy would be an understatement. But, it is helpful at times like these to remember just how messed up technically and financially Intel was a mere two and a half years ago.

AMD said sales in the Computing Solutions segment, which is mostly CPU processors, came to $1.28 billion, up 17 percent, driven by a 19 percent increase in CPU sales and a 16 percent increase in shipments. Mobile processor shipments skyrocketed 68 percent, showing that AMD is getting some legs in the laptop market. Graphics processor sales rose by 29 percent to $252 million, and various consumer electronic and handheld products accounted for $97 million in sales, up 14.1 percent.

As for the coming fourth quarter, when AMD has to start executing better in the wake of the loss of some key executives and a wide-awake Intel, all the company would say is that it expects sales to increase along the normal seasonal curve.