I don't think too much would happen to IDTI because it is not valued much, if any, higher now than it was before the news about the C6 was factored in. There may be a slight amount of valuation due to the C6, but the most of it is due to IDT's other products. They have zero revenue from the C6 and have forecasted no "significant" revenue, meaning not as much as 10%, from the C6 for this quarter.
Intel could drastically reduce prices but by how much? IDTI has a chip die size that is 40% to 60% smaller than Intel's and other manufacturer's. Because yields on ICs decrease in inverse geometric proportion to die size, a 40% increase in size equates to about a 96% decrease in yields. So if IDTI is able to yield 65% at 88 mm2, Intel would yield around 34% at 12mm2. Thats just an example of the general experience on semi yields. It therefore costs Intel a lot more to make a P55 chip than it does for IDTI (ramped cost). The FTC is currently investigating Intel for antitrust strong-arm tactics used to intimadate customers and protect it's market share. Many of these types of tactics are unspoken "standard operating procedure" in the semi industry - "oops, your allocations of those critical parts you need just got stretched out, sorrreee!". If Intel started charging less than it cost them to manufacture and market their parts with reasonable overheads and margins, in other words at a price needed to be a real problem to IDT's margins, IDT could protest to the FTC that Intel was practicing unfair trade. This would clearly and blatantly be against the antitrust laws. Selling below reasonable fair market cost is the same sort of thing that companies accuse the Tainwanese and Japanese of doing on occasion to increase or protest market share on strategic products.
I think the chances of that happening are very remote.
Intel advised analysts during their conference call that they did not expect to see a major shift in margins from their historical (57%) norms. So, if Intel margins deviate very much, the entire investment community will be aware of it as well.
A lot of press has ben given to the recent price reductions by Intel. People seem alarmed; "Oh, such large decreases in price, Intel is smothering the competition" seems to be the cry of the day. Historically that thinking doesn't hold up at all. Sure Intel has cut pricing partly in concert with competitors entering the field with new products. But this follows a few quarter period in which Intel held pricing stable rather than change pricing at the normal pace dictated by the normal historical trend. Intel typcially has had quarterly price adjustments of 10%-15% while periodically introducing next generation parts at higher prices. Intel did not have a price reduction in the Fall and Winter of '95/96. Of course Intel faced no serious competiton from AMD or Cyrix and IDT was not in the game. Intel was also having a hard time keeping up with demand. Why lower prices when you can't supply enough parts anyway? So when AMD and Cyrix finally came out with competitive parts, Intel lowered the pricing by 25%-30% and introduced a new series of parts at higher prices. That just put things back on the "norm". This Fall Intel announced that they will reduce prices by the normal amount.
Sorry to spend so much time on this, I realy think it is very unlikely that Intel could or would lower pricing enough to damage IDT. |
