What I saw reported was that he said that "profit improved" in flash, which would be technically true if they went from -2x to -x.
Looking at the financials makes it seem unlikely. Follow this:
In Q2'03 Intel had Flash Revenues of 411M, other WCG revenues of 54M and a WCG loss of 123M
It also had non-WCG, non-IAG revenues (used to be called the "Comm Group") of 508M with a 143M loss.
Confusing, yes, but here's the key: a year ago, at least, the Flash part of Comm Group and the Comm part of Comm Group were equally unprofitable -- (123M)/465M and (143M)/508M, which is -26.5% and -28% of sales, respectively.
Unfortunately Intel reported P&L for WCG (mostly flash) only for a couple quarters and now only reports the combined Flash+Comm loss of (126M).
Generally in this semi-fixed-cost business, the best way to eliminate a loss is with higher sales or higher ASP. And we know Intel recently lowered flash prices, they didn't increase them.
OK, so that leaves higher sales to alleviate the losses in Flash. So what happened in the last year?
In one year Q2'03 to Q2'04, Flash sales have grown 43% or by 176M and Comm sales have grown 37% or by 148M. Both parts, Flash and Comm, grew by nearly equal amounts in both dollar terms and percentage terms. The two parts are now confusingly called the Intel Communications Group.
In order for the Flash part of ICG to be profitable, the entire loss of (126M) would have to be in the non-flash part of ICG. That would be only a 17M improvement in the last year despite 148M higher revenues! Not credible.
And its also not credible that a reported loss of (123M) in the WCG group of Q2'03 would be wiped out by just a 176M revenue increase, especially when prices are being slashed to gain market share.
You are also ignoring the fact that Intel now has a huge overhang of flash inventory. From the earnings release:
Inventory levels grew by approximately $427 million during the quarter, with approximately half of the increase coming from microprocessor inventories, and the balance primarily from flash memory and chipset inventories.
Taking 50%, 30% and 20%, we get a GROWTH of flash inventory of $128M. Why are all the analysts falling over eachother worrying about CPU inventory when flash+chipsets, which combined account for < 1/6th of Intel's revenue, accounted for half of its inventory growth?
Or to put it another way, Intel made 20% more flash than they were able to sell last quarter, probably even more, depending on how the inventory is valued compared to sales prices.
Petz |
