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Despite gloomy reports from IDC and Gartner that PC shipments had
declined drastically in the first quarter of the
year, Intel (NASDAQ: INTC) managed to keep the damage to a
minimum.AMD (NYSE: AMD) wasn't so lucky.
Intel expands
After the IDC and Gartner 2013 Q1 PC shipment data came out, I was
prepared for roughly equivalent drops in Intel revenue for the PC Client
Group (PCCG). IDC's data indicated a 15% drop from 2012 Q1, while
Gartner said the drop was about 12.4%. Instead, the drop in revenue
was only about 6.6% to $8.0 billion.
What accounts for Intel's relatively soft landing? Here are my top three
explanations, in order of increasing probability:
3) The research firms were simply wrong. I consider this the least
likely explanation simply because they agreed fairly closely.
1) Intel increased its market share compared to AMD. This is the one
explanation that seems the most intuitive based on the chart below:
AMD's Computing Solutions segment revenue has been on a long
slippery slope since the beginning of last year, apparently missing out
on the uptick in PC shipments at the end of last year. After doing some
analysis, I believe the consensus view that AMD had a 17% share of
the processor market at the end of last year was overly optimistic. I
believe that AMD's current share is more like 12%.
This is good news for Intel, of course, and it's clear that Ivy Bridge has
been very successful, despite the downturn in overall PC sales in 2012.
Ivy Bridge is in everything from Microsoft's Surface Pro to Apple's
MacBook Pro.
At the same time, it was clear in the conference call that Intel
management were concerned about the impact of Windows 8 on sales,
and admitted, somewhat defensively, that there is indeed a “learning
curve” for Windows 8. When I reviewed Windows 8, I wasn't put off by
the learning curve particularly, but by the way the OS was poorly
integrated. As an OS for a traditional desktop or non-touch laptop, I felt
it was inferior to Windows 7. As a tablet OS I think it works well. In
using Windows 8, one has the sense that Microsoft (NASDAQ: MSFT) is
burning its desktop bridge behind it.
Haswell announced
With lots of good products in the pipeline, Intel's optimism for the year
seems well founded, assuming the PC and Intel-based tablet markets
don't sour in the coming months.
AMD contracts
And what of poor beleaguered AMD? AMD had total revenue of $1.09
billion, down 31% year over year, and posted an operating loss of $98
million. But the news wasn't all bad. Gross margin did indeed return to
41% as I indicated in my previous article, “Can Game Consoles Save
AMD”. Cash and long-term debt didn't change much from 2012 Q4:
about $1 billion in cash and about $2 billion in long-term debt.
Graphics division is holding reasonably steady at $337 in revenue
down only 12% year over year. Computing Solutions continues its free
fall with $751 million in revenue down about 38% year over year.
I believe the Computing Solutions revenue would have been even lower
except for a “progress payment” from one of AMD's console PC
customers, presumably Sony. This payment isn't listed in any of AMD's
financial documents, but was mentioned in the conference call. AMD
management happily touted the fact that the next Playstation will use
an AMD accelerated processing unit (APU) that combines an Intel
compatible CPU with a Radeon GPU on a single chip.
AMD management were still being coy about Xbox, however, apparently
unwilling to steal Microsoft's thunder. Word is that Microsoft will reveal
the next Xbox at the Electronic Entertainment Expo (E3) in June and
that it will also use an AMD APU similar to the one in Playstation 4.
The console business could allow AMD to survive and even prosper, but
it would be a smaller, leaner AMD. AMD seems to be moving
aggressively to restructure for that future. Reduced operating costs,
especially Marketing and G&A were largely responsible for holding
down the operating loss to $98 million for the quarter, an 83%
reduction from the year ago quarter. But profitability may remain
elusive until console APUs start shipping in volume.