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Technology Stocks : Intel Corporation (INTC) -- Ignore unavailable to you. Want to Upgrade?

To: Mary Cluney who wrote (138726)	7/6/2001 12:35:36 PM
From: pgerassi	Read Replies (1) \| Respond to of 186894

Dear Mary: Re: "1. All, most or even a significant portion of integration costs are included in server costs." I did not include integration costs in my CPU cost / overall server cost ratios. All I stated was that if the typical RDBMS is costed into the server cost (and that does not include installation or integration, just the cost of the license for concurrent users (or do you not know how Oracle is priced?)) not atypical for a typical server bought to scale up and treating RDBMS like the OS installed is not atypical since the big money is in the application that runs on the RDBMS and OS) the license is typically equal to the cost of a mid level server. A high end PC of less than $10K can easily serve 100 concurrent users in which Oracle costs $40K to $60K. All of a sudden even a $2k Xeon CPU looks mighty small and I was talking of P3s and Tbirds. The effect is greatest at the low end. Re: "The Itanium platform is designed to compete in the mid and large server market. It's rationale is that it will significantly lower enterprise IT costs. But, for Intel, the revenues will be higher and the margins much better than ever. The cpu, instead of becoming insignifcant will become more important over time as it takes over many more functions and that require less human intervention. The "bet" on investing in Intel (IMO) is how well the Itanium platform penetrates the mid and high end server markets and the leverage that it can gain. Success in this market will ensure Intel's survival over the next 50 years or so. For Intel to survive a longer period of time, Intel's investments in the "other" categories will have to bear fruit." But at the higher level servers, the CPU makes for a much smaller segment of the pie. Out of $40B in servers at the upper ranges (mid and high), only $1B to $2B per year are in the CPUs and even these will be superceded by super clusters of 1-2 way servers. Who will pay $1M for server hardware when a $70K server can do it better, faster, and cheaper with far more redundancy? The very thrusts of higher and higher speed cheap communications hardware especially in LANs make this even a greater likelyhood. Let me give you another example of a small server. This server basically runs like an automated answering service. The cost of a CPU board is $5K. Two of them are in the rack mounted chassis. In them are 400MHz Celerons currently going for less than $100 each. The chassis itself goes for $10K. There are 4 telephone switching boards (to a maximum of 14) each costing $4K. 4 10K 18GB hard drives, 1 CD-R/RW, and a floppy round out the hardware (the chassis allows either CPU to control the storage and IO (all controllers are on each CPU board) (why do you think it goes for $10K?)). $2K goes for the OS and $8K for Oracle for an overall cost of $50K. Now the CPUs are less than 0.2% of the cost and much more like 0.1%. These servers are installed by the thousands and are included in your figures in the 1-2 way category. This does not include the application software, integration, maintenance, or any other such integration or infrastructure costs. Mainframes are like this. Redundancy is expensive. Quick to fix also costs. The above is fully hot swap. That is you can replace any component while the system is running and it does not go down. It might run slower for a while, the conversations on the failed component might go away, but properly configured, even that may not happen, and that is what true 24-7 operations require. And you the buyer's customers demand it of them (you like it when a service department doesn't answer the phones?). Well employees do not like their payroll checks to be late and neither does management like their profitable systems to go down either. What is a system's uptime worth, when a company loses $10M an hour? Now you can see that your estimates of the cost of the CPU chips themselves in these servers are quite high. I was upper bounding their contribution at the very least. You can see why the mainstream PC market overwhelms these server CPU revenues. You can also see why the CPU divisions are operated at a loss like Intel does with motherboards. What it makes possible to increase revenues on is much larger, just like the console makers sell consoles at a loss and make it up on the games. Pete