Intel Discusses its Market Share Loss to AMD (AMD, INTC)

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Includes: AMD, INTC
by: David Jackson

With Dell's (NASDAQ:DELL) announcement that it will offer servers based on AMD (NASDAQ:AMD) chips by the end of this year, Intel's (NASDAQ:INTC) loss of market share to AMD is coming under renewed focus. Intel was grilled by analysts about this on its April 19th conference call. The analysts were sceptical of Intel's claims that it was no longer losing share. Here's the interaction culled from the call; it's worth reading carefully as investors try to guage how much market share loss is currently priced-in to Intel's stock:

Michael Masdea - Credit Suisse

I guess what's interesting is the last few quarters we've seen your competitor seemed to outgrow you but market share loss hasn't been something in your vocabulary. Is there some math that we're doing wrong? What gives you the confidence that there's not more share loss going on, that we've seen the last few quarters and it's not going to continue?

Andy Bryant

It's simple. When we talked to you in January, it was before we saw our competitors' shipment data. When you looked at it, it clearly said in the fourth quarter of last year we lost more market segment share than we thought we did. I think we probably lost a little more in the third quarter than we thought we did as well.

If you look at the fourth quarter, again, we've seen their unit shipments, we know what our unit shipments are. On a unit shipment basis, we held -- in the first quarter, I mean. So we've seen that. There could be some adjustment in the second quarter again, as I clean up my inventory. I don't know what their position is so I can't really tell you yet how the points will move back and forth. The first quarter was a noticeable change from what we saw in the back half of '05.

Michael Masdea - Credit Suisse

Does that imply that your ASPs were down in the ballpark of 5% to 8%, somewhere in that range? It seems like their unit market share wasn't down quite as much. Their units weren't down as much as yours were.

Andy Bryant

ASPs only dropped slightly which wouldn't be quite that much to be honest.

Michael Masdea - Credit Suisse

I'll work on the math...

...

Cody Acree - Stifel Nicolaus

Thanks. Andy, in this quarter a lot's been made of the pricing competition in your efforts to clean out the channel. Can you talk about your pricing strategy? Sounds like your ASPs are only down just moderately this quarter. I guess there seems to be a little disconnect. How does the pricing strategy change in the second half with the new products?

Paul Otellini

Let me address the question, second half first. The new products that will come in right on top of our existing price points and then ramp very quickly from there down. So they tend to replace the existing dual-core products at the high end. They have new SKUs, new in splits on top of our product line, and new feature sets. So that one is pretty easy.

In terms of the pricing actions we've taken in the first quarter and looking at Q2 and Q3, they tend to be more aggressive towards the bottom of the market, particularly on desktops. I think that's one of the reasons you're seeing a bit of a glut in the channel today, not at our distributors because the inventory there is in relatively good shape, but in the grey market and that's up to distributors and brokers. You tend to see a bit of a discount for most microprocessors of all flavors, of all brands in the channel right now.

Cody Acree - Stifel Nicolaus

Paul, if I may follow up there. You talked about the market share stabilizing here in the first quarter, basically with the same product portfolio that caused some of the market share losses in the second half. Is it a more aggressive pricing strategy that caused that stabilization or is there something else going on there?

Paul Otellini

Well, the fact that ASPs were down only slightly says it wasn't a radical change in pricing. There were some line items that had fairly significant moves, particularly at the bottom of the stack. But we also did a good job selling our high end products this quarter, particularly in notebooks as the Core Duo ramped. So the number that we talked about in my comments was a blended number.

Cody Acree - Stifel Nicolaus

All right. Thank you.

...

Mark Edelstone - Morgan Stanley

And then just so I'm clear, the microprocessor revenues are down about 15% sequentially. If I take a relatively slight decline in ASPs it sounds like units would have been down about 12% sequentially in Q1. Is that about the right order of magnitude?

Andy Bryant

You're probably pretty good at math. I actually haven't calculated that number so I don't know. But it's probably in that neighborhood.

Mark Edelstone - Morgan Stanley

I think AMD disclosed their units were down 6%. I was just trying to reconcile the comments on the share issue in the quarter.

Paul Otellini

Well, if you go back to what they said, they said they believe they gained revenue share. They didn't say anything about unit share, to my knowledge. We've done the math. We know what we shipped and we did the math on what they shipped. By the way, just on your number, you may be assuming too aggressive of an ASP decline for Intel in your comments there. We said slight.

Mark Edelstone - Morgan Stanley

Okay, fair enough.

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Chris Danely - JP Morgan

Thanks, guys. We're all concerned about a price war out here. If I do the math on the full year revenue guidance it sounds like you guys are expecting about 15% sequential growth in Q3 and Q4. Are you not anticipating a price war in microprocessors in the second half in order to gain back the market share?

Andy Bryant

I don't know what a price war means. I think we're going to be bringing better products that compete better against the competition. I think that price will still be necessary to win back market share we lost. So I guess I would imply, we've had as Paul said, in certain markets, we've had pretty aggressive pricing through the first part of this year. It may lighten a little bit in those markets, but you'll continue to be on normal price curves for all your products. ASPs will be down some through the year.

Chris Danely - JP Morgan

So you're expecting a normal price curve in the second half of the year, nothing too crazy?

Andy Bryant

We're not expecting anything crazy, but it is a competitive environment. Even as we bring out new products and new capabilities, you have to win business back that you lost.

Chris Danely - JP Morgan

A philosophical question, Paul. If you have the choice between sacrificing a little bit of margin but gaining back your market share, which choice would you take?

Paul Otellini

I would take the choice that keeps my factories the fullest.

Excerpt from the full Intel conference call transcript.

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Tagged: , Semiconductor - Broad Line
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