AMD shut out of the debt market

[krumme]

The market segmentation, a high end *convertible* powered by Core and a low-end tablet powered by atom makes a lot of sense IMHO. Core isn't about cheap tablets, but high end notebooks that can be used as a tablet as well.

Once Haswell arrives and address the battery life issue, Intel will have a competitive solution for the high end. Haswell, or Broadwell will make the tablet form factor a staple for Core's performance levels, not something that must be heavily engineered as today. So I think it's the right direction. As for Atom, given the target market, phones and tablets, I doubt that it will be more expensive than Temash.

All in all we're going to see a replay of Brazos launch. AMD brings a nice product to the market, Intel brings the bottom end of the Core line up to check growth from the top and leaves the bottom for AMD.

I agree. The new Atom for the low end, and broadwell for the topend will be a very strong team, and will squeeze AMD in a very narrow niche, if any. I dont beliewe for a moment Haswell will be enough, 22nm is way to far a stretch, and still to expensive for what i would call high-end - meaning a product that still is good business in itself, but broadwell or broadwell successor will certainly get there.

I hate to see Intel try to scale product to level where they are not technically optimal, nor to look at their marketing trying to sell expensive 225usd cpus for a market the obviously dont want to pay for it. It so old school thinking, they behave like they are in the x86 market competing with AMD only. What i dont understand is what Intel wants in this lowend market at all. I can only see one good reason and that is the contiuing strategy to keep AMD barely alive. As it is they are going to compete with little, little-big, and with their capex, there is no way this can turn into good business. Its like they are stuck in the old thinking - basicly thinking they sell cpu.

I cant understand there is not even more business to be done at B2B level for Intel, expanding their product portforlio here, integrating into more solutions - more solution like. Imagine what that could make for a difference business is run and monitored etc. They have take some steps here, but i think they need top step up the activities and innovations here, not so much at product level but more near business level innovations. I will make them compete with the likes of HP, but as they will have monopoly of huge parts of the servermarket anyway, i would expand here. Then they can use their huge competence and salesforce more effectively than just selling to the OEM for the cheap b2c market.

Intel have huge possibilities, AMD dont. When you judge a company we have to see where they stand and how they exploit the opportunities they have. I dont think neither AMD nor Intel have been good at that, especially considering the enormous amount of technical competence they have inhouse. Competence that ought to be directed at higher level innovations.

 

[mrmt]

I agree. The new Atom for the low end, and broadwell for the topend will be a very strong team, and will squeeze AMD in a very narrow niche, if any. I dont beliewe for a moment Haswell will be enough, 22nm is way to far a stretch, and still to expensive for what i would call high-end - meaning a product that still is good business in itself, but broadwell or broadwell successor will certainly get there.

Agreed here. Only when the two shoes drop, Broadwell at the high end and Airmont at the low end, Intel team will be complete, and it will be a very strong one.

I hate to see Intel try to scale product to level where they are not technically optimal, nor to look at their marketing trying to sell expensive 225usd cpus for a market the obviously dont want to pay for it. It so old school thinking, they behave like they are in the x86 market competing with AMD only. What i dont understand is what Intel wants in this lowend market at all. I can only see one good reason and that is the contiuing strategy to keep AMD barely alive. As it is they are going to compete with little, little-big, and with their capex, there is no way this can turn into good business. Its like they are stuck in the old thinking - basicly thinking they sell cpu.

Intel's designs were good for most of the times, but what gives them the edge they have over the competition is the fabs. Intel is all about manufacturing a lot of chips at insanely high yields and very low costs.

We are already in a point where a phone SoC is the same size of a desktop CPU. It will be a matter of design/performance/power consumption from here, which means that by the end of the decade we may have Core-like performance levels in your handset. So what were low end market brackets today might become mainstream brackets tomorrow, and Intel must have a presence there, to build relationship, brand name, influence designs, etc. More important, it will be the low end that will give the scale needed for Intel business.

People keep looking at Intel gross margin, but I don't think this will be the determining factor for Intel. It is the amount of cash flows they can generate that will determine whether they will be successful or not, and you can bet that Intel would gladly trade 10 gross margins points for 20% more FCF. It will be scale that will allow Intel to make this trade off, and this trade off cannot be done without a huge chunk of the low end market.

I cant understand there is not even more business to be done at B2B level for Intel, expanding their product portforlio here, integrating into more solutions - more solution like.

You mean like IBM, that provides full packages for whatever you need? Well, this business is huge. Just look at the market cap for IBM, Oracle, SAP, MSFT. This is not a business Intel could just enter with marginal amounts of money, like they did with Cray or SSDs. They would have to sink *a lot* of money to develop software solutions, and as Oracle is showing us, there isn't much to gain from bringing a hardware business into your software business. By manufacturing the server chips, storage and interconnects those providers need, Intel benefits from a chunk of their profits but without much of the CAPEX/OPEX and additional overheads needed to sustain their business.

In any case, their huge commitments to 14nm capacity and their huge size that prevents an outright acquisition means that they are committed to a foundry business model for the foreseeable future.

 

[ShintaiDK]

Note that IBM is stagnant, they are only keeping up right now due to cost savings. That however will also have its limit.

Hardware sales for IBM dropped 7%.

 

[krumme]

Agreed here. Only when the two shoes drop, Broadwell at the high end and Airmont at the low end, Intel team will be complete, and it will be a very strong one.



Intel's designs were good for most of the times, but what gives them the edge they have over the competition is the fabs. Intel is all about manufacturing a lot of chips at insanely high yields and very low costs.

We are already in a point where a phone SoC is the same size of a desktop CPU. It will be a matter of design/performance/power consumption from here, which means that by the end of the decade we may have Core-like performance levels in your handset. So what were low end market brackets today might become mainstream brackets tomorrow, and Intel must have a presence there, to build relationship, brand name, influence designs, etc. More important, it will be the low end that will give the scale needed for Intel business.

People keep looking at Intel gross margin, but I don't think this will be the determining factor for Intel. It is the amount of cash flows they can generate that will determine whether they will be successful or not, and you can bet that Intel would gladly trade 10 gross margins points for 20% more FCF. It will be scale that will allow Intel to make this trade off, and this trade off cannot be done without a huge chunk of the low end market.



You mean like IBM, that provides full packages for whatever you need? Well, this business is huge. Just look at the market cap for IBM, Oracle, SAP, MSFT. This is not a business Intel could just enter with marginal amounts of money, like they did with Cray or SSDs. They would have to sink *a lot* of money to develop software solutions, and as Oracle is showing us, there isn't much to gain from bringing a hardware business into your software business. By manufacturing the server chips, storage and interconnects those providers need, Intel benefits from a chunk of their profits but without much of the CAPEX/OPEX and additional overheads needed to sustain their business.

In any case, their huge commitments to 14nm capacity and their huge size that prevents an outright acquisition means that they are committed to a foundry business model for the foreseeable future.

Its not huge software or IBM basic research i mean. This kind of solution is the right thinking building on the strong sides of Intel:
http://intelhybridcloud.com/
One step at a time. But more steps like this adds op. They have extremely strong programming competences, look fx. at the compiler side.

Right now they are building capacity for the future low end. Yes they are getting a name, relations, brand, but at the end of the day, who gives if their phone is with intel inside? - it doesnt work like that anymore, consumer focus have shiftet. Profit is not on the cpu hardware for the lowend and mobile market, even the gpu part will fade in importance in 10 years time.

 

[mrmt]

Its not huge software or IBM basic research i mean. This kind of solution is the right thinking building on the strong sides of Intel:
http://intelhybridcloud.com/
One step at a time. But more steps like this adds op. They have extremely strong programming competences, look fx. at the compiler side.

The cynical answer to this question would be to say that internal models see a bigger ROI on their current business than on investing in their current strategy. But things don't work like that. Executive visionaries see beyond valuation models. They see money and risks that no model can predict in a substantive fashion and take decisions beyond those models.

Intel executives didn't see things like you do, and they went deeper into the manufacturing business. They probably expect that 14nm node will give them an unbeatable advantage over TSMC and their ARM crowd, and that their products will win big time on the market.

You may be reading the tea leaves better than them and the money might be where you are pointing, but Intel chose the other way. This isn't really surprising. Intel is a foundry company, the manufacturing side at Intel is too strong and has a saying in a lot of things, a lot of money they spend in R&D goes to the manufacturing side of the company and those fabs are really something to be proud of. Intel wouldn't survived the P4 if not for their node advantage, that kept die size in check and allowed awesome clock scaling for the time. With such a deep ingrained culture, it isn't surprise that they are not really looking into other markets but trying to extrapolate their strengths to other markets.

 

[krumme]

Yes ofcource the internal models do that. They always do. We know how they can be bended to be the platform for, what topmanagement have decided.
I think the visions are just as well bound to culture and tradition in the company than rational choice - perhaps even more. When you have huge process R&D departments, and a lot of money invested there, they have a strong voice internally.
Secondly when companies have to select strategies, they tend to do more of the same. Epspecially under moderate pressure (under extreme pressure it calls for more radical interventions). All the clever heads sit down, discuss, and then they have this brilliant idea; we just do more of the same. It happens all the time, and its basic human psychology. Its to do the known, and thereby presumably safe.
I am not saying Intels way is wrong, but if you want ½ years extra advance on the process nodes it cost dozens of huge, huge innovationsproject.
Its about investing in the +10 years time. But in non family owned and controlled companies it tends to be a seldom quality. There is no incentives in place to secure the very long perspective.

 

[Idontcare]

Its about investing in the +10 years time. But in non family owned and controlled companies it tends to be a seldom quality. There is no incentives in place to secure the very long perspective.

It is anecdotal evidence, but in my experience the handful of corporate executives and CEOs I have had the opportunity to interact with one-on-one (I was a technology consultant for a while) that did have concerns for the long perspective it always (without exception) came down to their concern for the ability to provide work for their employees. To be able to secure the financial future of their existing employees.

It is a sort of socially conscience corporate stewardship. I've met and worked with CEOs who were the pillage and plunder type, didn't care what kind of a looted corpse they left the company in when they were done with their 2-3 yr stint as CEO. And then I've met CEOs and presidents who were heavily weighed down with the burden of worrying about the employment prospects 20yrs out.

And it is very much a personal trait that varies by CEO, it is not cultural (neither the society or the business culture). And I have to believe that if it is something I could pick up on and determine within the time span of a few hour long meetings with the person in question then surely the BoD could have as well when they were hiring them to be CEO...so it is a trait that presumably the BoD decides they either want or don't want.

The guys who were solely motivated by coin and ego don't really hold the well being of their subordinates high in priority, and it shows when that is the case.

HP is probably the best case example of this. (I never worked with their CEO's though, don't want to oversell my industry connections, my consulting work was with the tool and chemical suppliers in the semicon industry, who shall remain nameless for obvious confidentiality reasons )

 

[krumme]

Thanx for the story.

We know from studies, that there is a very a high degree of psychopats among top managers, or with psychopati tendensies. Obviously also because they have qualities that are attractive. They are charming, agressive and they dont have second thought about other peoples feelings or lives. All qualities that can be handy in many situations.

Now besides that characteristics, that is clearly connects to personality, i think much of the social corporate stewardship as you mentioned, can be explained by what the top managers career and background is. If they work up the ranks in fx. an industrial company, they tend to know what matters for people and therefore they care, or perhaps their family background makes them know how most people lives is.

I think you will se much more responsibility by the old industrial establishment than the new rich from the banking sector. And i think it shows clearly in the profitability for the companies on the long perspective. If you do care, you dont take the same amount of risk. The most idiotic examples we see in the banking sector where the bonus system in practice fuelled irrational risk taking behavior. Add managers that practically lives outside the normal world, and we have the perfect recipy for economic and social disaster.

Its an old and known dilemma in economics; who is going to plant the trees for the next generation so to speak.

I have only heard one solution that seem to work. Some dealers in London financial market, dealing with derivatives, does not have the usual bonus giving huge risk for the customer. Instead their bonus is solely put on their pension saving, and is derived from the long term results of their actions. I think we need more of that kind of incentives, and not only rely on peoples personality or background. It will give robust, stable growth.

 

[mrmt]

I think you will se much more responsibility by the old industrial establishment than the new rich from the banking sector. And i think it shows clearly in the profitability for the companies on the long perspective. If you do care, you dont take the same amount of risk. The most idiotic examples we see in the banking sector where the bonus system in practice fuelled irrational risk taking behavior. Add managers that practically lives outside the normal world, and we have the perfect recipy for economic and social disaster.

I've stayed in the banking/finance industry for almost my entire professional life, I can say that this trend of not caring about what happens down the road is more prominent in the financial sectors, but it's not a must-have trait for the financial sector.

Executives that deal with trading are really focused in the short term, and they cannot be otherwise. Their business live or die by daily variations, they cannot think long term. For some huge positions, one week is long term. The executives that deal with credit, wealth management and consumer services, they try to be as far sighted as any executive in any other industries.

When I joined my first bank I had the impression that private companies had more room to maneuver than corporations, and the latter should have more professional management. It isn't always like that. I met executives from familiar companies that were either inept or didn't really care enough about the company, and I met executives from corporations that cared a lot, or at least seemed to care, about the companies they were leading. What really matters is the vision of the people giving the orders at the top and the capacity of the people executing the strategy, and this we can find in both corporations or private companies. Name the sector, and you'll find good and bad examples of management in any ownership structure you can find.

I have only heard one solution that seem to work. Some dealers in London financial market, dealing with derivatives, does not have the usual bonus giving huge risk for the customer. Instead their bonus is solely put on their pension saving, and is derived from the long term results of their actions.

The lump sum bonus is bad because you generate an asset that will weight on your risk for some years but yet the trader was already rewarded using *an estimate* of the real return and couldn't care less whether the derivative will backfire or not, but this strategy you mentioned is just dumb and unfair, because now the trader will generate an asset and he will be rewarded only when he retires, which means that he may not live enough to see his reward, *and* the amount of money will still be tied to an estimated return. If you want to be fair, bonus should be tied to the same time frames of the asset life, meaning reward pari-passu with returns during the asset life and clawback if the asset backfire.

 

[krumme]

If you want to be fair, bonus should be tied to the same time frames of the asset life, meaning reward pari-passu with returns during the asset life and clawback if the asset backfire.

You are probably right. I dont know the technical terms and the sector, but it sounds right

I think some of the problem is, the effects of short term incentives - and by nature thereby shortterm planning/horisont also have sideeffect outside of the coorperations themselves, fx. when taxpayers in practice have to pay for the banking sector, or the public have to pay for unemployment security when there is huge layoffs.

Do we have any good examples of legislation, that makes sure the long terms interest from some shareholders influence the boards incentives, to secure a more long term perspective?

 

[Idontcare]

You are probably right. I dont know the technical terms and the sector, but it sounds right

I think some of the problem is, the effects of short term incentives - and by nature thereby shortterm planning/horisont also have sideeffect outside of the coorperations themselves, fx. when taxpayers in practice have to pay for the banking sector, or the public have to pay for unemployment security when there is huge layoffs.

Do we have any good examples of legislation, that makes sure the long terms interest from some shareholders influence the boards incentives, to secure a more long term perspective?

That is the fundamental crux of the "moral hazard" conundrum.

Be it corporate or social welfare, if a society is willing to reduce the risk of others at financial expense to themselves (as tax paying members of the society) then people have even less reason to be concerned with cultivating a long-term perspective.

Live for today and let everyone else subsidize your short-sightedness come tomorrow. And if they don't, riot like it's 1199!

 

[mrmt]

I think some of the problem is, the effects of short term incentives - and by nature thereby shortterm planning/horisont also have sideeffect outside of the coorperations themselves, fx. when taxpayers in practice have to pay for the banking sector, or the public have to pay for unemployment security when there is huge layoffs.

I'm not into the short term, "stimulus" crowd and I agree in general with this argument, but I stress that some parts of the financial sector are short term business and *must* be short term oriented.

Do we have any good examples of legislation, that makes sure the long terms interest from some shareholders influence the boards incentives, to secure a more long term perspective?

I don't think legislation is an answer for this.

You can find very good examples of companies that weathered through this conundrum with corporate governance policies and poison pills and I think that's the way the things should be. Once you make long term planning something inherent of your culture, of your corporate governance mechanisms, it's not a trivial task to dismantle this structure just to get short term gains.

OTOH bring a legislation for that and you'll see companies more worried about compliance with regulation than with corporate governance, and armies of lawyers making money defending and prosecuting executives due to "reckless planning". Take SOX for example. SOX didn't make companies better managed but added a huge overhead in terms of personnel and internal procedures with the correspondent increase in costs. If you want to make companies better managed you must force more disclosure, to bring to public scrutiny to some decisions and deals made by the company, but to decide what should and should not be disclosed is very complex discussion.