Intel Is Still Bogged Down by Atom Processor

Intel’s (INTC) misjudgment of the low margins of the Atom in its netbook processor has hurt the company for the second successive quarter, according to the report “Netbook-Mobile Internet Device Convergence: Strategic Issues and Markets,” recently published by The Information Network.

I stated on January 8 in Seeking Alpha that Intel misjudged the success of the Netbook and its Atom processor to the tune of about a billion dollars for Q4. Given the low margins announced in its Q1 release, Intel is still bogged down by the Atom.

The Atom used in a Netbook is processed with 45nm feature sizes on 300mm wafers and measures 25 square mm. It is priced at about $29. Intel’s Penryn Core 2 processor is used in Notebooks. It is also processed with 45nm feature sizes on 300mm wafers and measures 107 square mm. It is priced at about $279. There is a price difference of $200 per processor between the Penryn and Atom, but more importantly a difference of $115,000 per processed 300mm wafer.

Intel rethought its production schedule in Q1 by allocating capacity for the Atom and for the Penryn, unlike Q4 where the cut back production on the more profitable Penryn. I estimate that Intel produced 5 million Atom processors and 50 million Penryns.

On March 2, Intel and TSMC announced they had reached an agreement to collaborate on technology platform, IP infrastructure, and SoC Solutions for the Atom CPU cores. That situation will improve Intel’s margins for Q2 2009.

While the announcement was slated toward TSMC’s capability to produce Atom cores for Intel’s march into the Mobile Internet Device (MID) market, which is dominated by ARM, it was an opportunity for Intel to wipe production of the Atom off its books. I’d like to think of it as ‘Intel’s Atom Bomb’. It indicates the tech sector is not really that bad off as the numbers suggest, but just a miscalculation on Intel’s part. Indeed, Intel did say that the bottom had been reached in the PC sector.

Disclosure: No positions

Comments

[Saturn V:]

Robert has a done a very poor analysis and an amateurish hatchet job.

He is unfamiliar with the concept of "chip yield" for a semiconductor wafer. The Penryn die being several times larger than the Atom will have a much poorer yield. No account of the yield.

He has the pricing all wrong. Yes he compares the High End Penryn cost vs the Atom cost. A lot of the Penryns are branded as Celerons, and Pentiums by down binning or deliberatlely crippling the product at final inspection. The cost of manufacture of Core 2, Pentium and Celeron are practically the same, but are sold in a range of $50 to $200 depending on the market demand. If you compare the Celeron to a Atom, Intel makes more profit on a Atom chip than on a Celeron. This issue was discussed at length by Stacey Smith in a conference call last fall, and this writer is totally ignorant.

The profitability of Atom is not an issue. Atom has expanded the market,and is more profitable than the Celeron which is its neares competitor. The biggest danger with the Atom is that the customers might think that the performance of the Atom is "good enough", and might avoid the Core 2. Yes the Core 2 is a much more profitable part, and if this behaviorial change happens, Intel profits might drop in the future. So far this has not happened.

Apr 22 07:54 AM