Ruminations on the electronics industry from David Manners, Senior Components Editor on Electronics Weekly.
Intel’s Margin Nightmare
How far can Intel’s margin fall before it’s in serious trouble? While most chip companies would kill for a 60%+ margin, as Intel has enjoyed for the last few years, Intel’s business model depends on it getting very high prices for its chips, and this might be coming to an end.
The threat to Intel’s prices are: the commoditisation of x86, thanks to ARM, price competition in data centres, thanks to ARM, and price competition in PC.
Investment company Raymond James says Intel could be facing a margin collapse.
The company is expecting Intel’s 62-65% margin of recent years to be heading for the mid-50s short-term and to the low 50s in the longer term.
Raymond James also points to Intel’s ”increasing capex burden with little or no profit.”
Stockbroker Miller Tabak points out that Intel is suffering from negative PC growth and excessive inventory of unsold chips (over $5bn worth).
Falling margins are a critical factor for Intel. If these fall, the Intel business model quickly comes under threat. Raymond James says Intel is faced with a “margin nightmare.”Tags: chip companies, collapse, investment company, margins, miller tabak