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Intel IT

Is Intel Making Too Many Chips? 38

Posted by Hemos 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.
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Is Intel Making Too Many Chips? More

Is Intel Making Too Many Chips?

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  • Efficiency? (Score:3, Interesting)

    by Ratso Baggins ( 516757 ) on Monday September 06, 2004 @01:28PM (#10169745) Homepage
    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.

  • I'm confused about Hemo's analysis (Score:4, Insightful)

    by ComputerSlicer23 ( 516509 ) on Monday September 06, 2004 @01:34PM (#10169780)
    Uhhh, if you make a run of parts and 300 good parts come off of it instead of 200. Just throw 100 of the good ones away, and the problem is solved. Sure it means you have more of them to put thru the rest of the processing, but I'm guessing increasing the number of good wafers is an easy problem to have.

    This sounds a lot more like an accounting anomoly (failed manufacturing costs are probably an expense, where dumping good chips have to be accounted for as unsold inventory which should go into the "cost of sale" if my guess is correct). Expenses are excluded, but cost of sale is included in the gross margin calculation. If that's the case, it's a case of the weirdness of accounting rules. The only other thing I can think of is if they are lowering the price of the chips to move the supplies they have.

    Kirby

    • Uhhh, if you make a run of parts and 300 good parts come off of it instead of 200. Just throw 100 of the good ones away, and the problem is solved. Sure it means you have more of them to put thru the rest of the processing, but I'm guessing increasing the number of good wafers is an easy problem to have.

      Exactly. Or, you could just do fewer runs later in the quarter! They must have a target for the number of chips they should produce. Once they hit those targets, they should shift to more R&D, etc, i
    • Why test all of them? When you have your run of 200 good ones, just stop testing the rest and throw the other 100 away then and there. Don't even worry if they're good or not.
    • Or destroy half the cache, and call it a Celeron.
      I bet Intel doesn't really care how much a Celeron costs, anyway.
  • From the posting:
    "Actually, it makes senses - if you make too many chips that you don't sale, you increase costs, without the increases in revenue."
    Hemos, please forgive the grammar nazi for his ignorance: But enlighten me as to why you chose the verb "sale". I would have been naive and used "sell" and left out the deeper meaning that you are eluding to with "sale". Please enlighten a gammar nazi.

  • Reduce the Price, obviously (Score:3, Insightful)

    by VernonNemitz ( 581327 ) on Monday September 06, 2004 @02:15PM (#10170029) Journal
    Practically all the reviews show that AMD chips of comparable type defeat Intel's chips. And Intel's cost more. Duh! Perhaps Intel should consider a larger-quantity order-size than a mere 1000, or even 10,000 -- and reduce the price accordingly.
    • Good luck. Intel is sneekily raising prices on people. What's even worse is that AMD tries to tie their prices to Intel's, so unless the break with tradition (and I hope they do), they will technically raise prices too.

      Now I should note that they aren't "raising" prices in that everything will cost more. Instead, the next time they release a processor, instead of putting it at the top price point and moving everything else down, they will introduce a new higher price point for it, and everything else stays

      • If Intel can raise their prices, and people will pay them, what's the problem. Do you expect a company to give away the product for free?

        You say it's "sneeky" [SIC] but it's Capitalism. Do you have something against making a profit?

        • Um, RTFA. People AREN'T buying them, there exists a huge oversupply in the warehouses. Capitalism demands that they should lower prices, cut production, or both in this situation.
          • Sure I agree, but the original (clueless) author seems to have the attitude that if Intel isn't giving away their product for free, they are evil.
            • That alone to a THINKING socialist wouldn't be evil- not giving it away for cost+ is evil, but is practiced by every single corporation in the world that has any sort of a lock on patents or an oligarchy in the market. Which makes the market itself evil for not setting prices at a fixed cost+ (or, in old Guild Economy terms, a Just Price for a Just Wage). Supply and demand is always inherantly injust to somebody- sometimes to the consumer when demand is high and supply is low, sometimes to the company whe
              • Good, except that I disagree that there is anything such as a free market. As I read recently, all markets are constructed entities. Even the SEC and the apparatus surrounding stock exchanges is about 1000 pages of rules dictating how the market works. A free market is conceptually a market without rules at all, except those that arise like forces of nature.

                • True enough- and I personally rather like the idea of a truly free market. I just don't see how to get there, even starting from scratch. Any given market will eventually have a core of people setting the rules through pure economic force. In every evolutionary system, parasites will arise to fill niches left uncovered.

                  So the answer is to NOT let the system be evolutionary to begin with.
  • I'm sure they know what they're doing. Maybe they're hedging for when costs of production go up. If oil goes up unexpectedly, so does costs of production. Maybe it's cheaper to store excess chips now than pay higher costs of production later. Any business who's been as successful and around as long as they have probably knows what they're doing.

    • Re:They're a business (Score:4, Interesting)

      by cgenman ( 325138 ) on Monday September 06, 2004 @03:42PM (#10170578) Homepage
      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.

  • Or kinda like NASA having a bunch of rovers doing double overtime.

    Overestimating is just as bad underestimating when you look at the big financial picture.

    At least this will give Intel some motivation to actually invent again and slow the innovation.

  • This reminds me (Score:1, Funny)

    by Anonymous Coward
    Of how W explained our problems in Iraq by saying we won too fast.

  • It's high *yield* that's the problem! (Score:4, Interesting)

    by psyconaut ( 228947 ) on Monday September 06, 2004 @04:02PM (#10170729)
    "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
    • The scrap is already allocated for... they *can* just throw it away.

      There's two choices (1) Let the extra wafers sit in inventory (with the expectation that they will never be used) (2) Go through the extra expense of building pgas and release it into pga inventory

      I would throw them away if there was no expectation for them to be used.
      • Do you understand corporate accounting? You can't "just throw it away" because it becomes inventory. If you throw it away, you have to take an inventory write-down.

        It doesn't matter that extra efficiency was what contributed to more inventory. Nor the fixed cost of manufacturing. It's purely an accounting problem that arises from the engineering and manufacturing group doing a better than expected job.

        Perverse, I know. But look at what Atari had to do back in the day (write-down inventory and then PAY for
    • Why do you think they've had a 2.4 GHz chip for nearly 3 years now!!! They can't just throw them away because finished chips are still worth more than their weight in gold! but they can't just drop the prices to move chips either... that ruins the market for the future when you have to have prices back up. Intel wants to charge a little more each year instead of always the same...if they chicken out now and drop prices to move short term inventory they ruin the gradual price rising scheme...people will j
  • "It's hard to fuck up a monopoly, but we're doing it"
  • Make them unusable in North America (64k cache anyone hmm?)

    It's dirty when supply has nothing to do with cost...
  • if you make too many chips that you don't sell, you increase costs, but without any increase in revenue.

    You increase operational expense without increasing sales throughput but you are also reducing cash flow.

    Cash flow is what keeps a company alive.

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