Smoke and mirrors at Intel?

Dr. Robert N. Castellano, The Information Network

NEW TRIPOLI, USA: On December 22, 2009 I wrote an article on my column on TheStreet.com describing how Intel was finally making money on the Atom processor with its new (at the time) Atom N450. The basis of my argument was a press release from the company that “the new single core chip, called Atom N450 is about 60 percent smaller than present Atom processors and will require 20 percent less power.”

It has come to my attention after searching Intel’s web site that the N450 has a die size of 66 sq. mm., NOT 60% smaller, while its predecessor, the N230 has a die size of 26 sq. mm.

Was this just smoke and mirrors? Intel has been on the defensive ever since The Information Network in January 2009 questioned whether Intel's slashed revenue of about $1 billion for Q4 of 2008 and for Q1 2009 was because of its misjudging the success of the netbook and its Atom processor.

Paul S. Otellini, President, CEO, and Director of Intel made the following statement during Intel’s Q2 2009 (July 14) Earnings Call. “Atom revenue grew a very strong 65 percent this quarter, reflecting a bit of a snap-back after the inventory correction we saw in late Q4 and in Q1,” which suggests to me Intel conceded to The Information Network’s allegations.

Based on new size information I need to recalculate Intel’s revenues for the netbook market. A 300mm wafer will make 1,071 of the new N450 Atoms versus 2,716 of the old N230. Based on a price of $64 for the N450 and $29 for the N230, each 300mm wafer will generate $68,500 for the N450 and $78.800 for the N230.

According to a report from the Information Network, 31.1 million netbooks are forecast to be made in 2010. To generate that many notebooks, Intel would need to process 11,400 wafers of the N230 Atom and 29,000 wafers of the N450 Atom. Based on the above revenues per wafer, Intel would have made $902 million in revenues for the N230 and $1,990 million in revenues for the N450 - $1 billion more with the new N450.

That’s not all profits, as processing 29,000 N450 wafers versus only 11,400 N230 wafers is not cheap. Based on some calculations I’ve seen, and keeping in mind that manufacturing costs are highly company dependent, processing a 300mm wafer at 45nm costs about $5,000. Cost to Intel to manufacture the 11,400 N230 wafers would be $57 million, while the cost to manufacture the 29,000 N450 wafers would be $145 million. Thus, net profit would be $845 million for Intel of all the 31.1 million netbooks were made using the N230 Atom versus $1,845 million using the N450.

The above calculations are based on Intel holding a 100 percent share of the netbook market. However, in 2009 Intel had only an 80 percent share. But, you get the picture! Meanwhile, The Information Network projects that the ARM processor will to gain a 55 percent market share of the 96 million netbooks sold in 2012.

I’ll discuss the impact of the iPad on the Intel versus ARM battle in an upcoming article on TheStreet.com.