If it can’t double our money, we’re not building it, Intel Products chief says Mounting losses and financial turmoil has Intel cutting the deadweight, an effort that won’t end with axing staff. Going forward, any product the x86 giant isn’t absolutely sure can manage a 50 percent gross margin isn’t getting off the drawing board, Intel Products CEO Michelle Johnston Holthaus said during Bank of America’s …
Intel calls MS and asks,
"How can we work together to force all those holdout users out there, to upgrade to W12? What can we do to our CPU's to lock all those who won't upgrade out within a year?"
Pure fiction..... The conversation was probably had on the Golf Course or a Private mega yacht so there are no records of it.
Just a little out of touch with the realities of modern pricing for both consumers, hobbyists, and enterprise-level superscalars... nobody earns those kinds of margins except NVidia, and that is only because their "competition" hasn't proven themselves capable of going toe-to-toe with NVidia's hardware, especially at scale.
Intel has AMD as a competitor that has been eating Intel's lunch in the server space for some time now...
The average gross margin of all the companies on NASDAQ exceeds 50% for the last 15 years. It's normally around 60%.
Is this sustainable though, or is it a symptom of the richest getting richer, which does seem to be pissing people off a bit more nowadays?
The gross margin (of companies on the NASDAQ) was 42% at the start of 2010 but over 60% by mid 2014. This seems a very rapid increase, can this level of return be sustained?
If you focus only on maximising profit then you tend to minimise risk and innovation.
Partially, but you have to take into account, this isn't profit, this is just how much margin there is on actually making the product. You then have marketing, personnel costs beyond the manufacturing process (HR, legal, marketing, sales, purchasing etc.), corporate sponsorship, compliance costs, health and safety etc. that have to be deducted, before you get anywhere near gross profit, let alone net profit. Especially in the areas of compliance and environment, there has been a steep rise in costs to companies over the last decade or so.
But, yes, you look at net profit/net income for many of these big companies and they are laughing all the way to the bank, but gross margin on the goods manufactured is not a good indicator to how profitable the company is. The closer gross margin is to net profit indicates how efficient the company is.
Margin predictions at the start of a project are always based on really low quality estimates, even when all the parts have published prices.
When the margin relies on estimates of the yield of a new process that has yet to produce any commercial quantities - or even anything at all - then the error bars are huge.
So "must be 50%" means every single document they see will be "adjusted" to produce 50-60%.
If not, then they've just announced that Intel will never again launch a new product.
Given they have just been let off the hook for criminal prosecution and the fine as part of the deal is lost in the noise I think those accountants have does rather well.
That the company is in a mess with the production is a different matter. The killer is going to be when COMAC are certified in Europe all bets are off. Airlines like Ryanair are not going to wait when there is a cheaper product (= more profit) for the majority of their routes. Airbus will take a hit as well but probably not as big.
Without sales and marketing - the engineers might as well stay home.
Probably not going to be a popular opinion, but marketing is how you *justify* the margins - you convince buyers that your widget is worth the amount you ask to achieve the margin you want/need.
nvidia = poster child for the above.
there is no point in building the next whiz bang anything if you aren't going to tell anyone what you built.
The actual telling people what you built part is called "Marketing".
Planning for a Gross Margin of 50% is probably a bit low. as its Gross Margin (sales of product - cost of making product) not Profit Margin (sales of product - total costs). The cost of making the product is just that the cost of staff that make product + energy to make product + materials to make product, and probably not much more. The other 50% of the Gross Margin has to pay for packing and delivery of the product, sales, marketing, finance, legal, maintaining of existing facilities and equipment, new facilities and equipment, research, development, taxes and profit, and a lot of other things I cant be bothered to type. Yes they can be spread across all products but they still need to be paid for
Right, which is why you have something like Intel's old tick-tock approach: new products will grow revenues, gradual improvements will help margins. For a simple example: when Steve Jobs was pushing the I-Phone, he didn't start with the numbers, he started with the desire to create and dominate a new category. Over the last decade, Intel has got out of pretty much every category with the greatest growth potential (because initially small). It had an ARM licence and could quite easily have become∞ not only the dominant manufacturer, but possibly even designer. But Xeons for data centres were what were required for the bottom line, so they ran the unit down and sold it. As for the rest, it sounds a lot like the pharma model which favours buying companies up rather than inhouse development and relying on extremely high margins to keep the model going.
"...it's Gross Margin... not Profit Margin."
True, and it causes me to wonder why one would care much about gross margins? If I were picking things to build and sell, I'd want to know how much money I'd have at the end of it. Looking at a 50% gross margin and saying "whoopie, we've doubled our money!... okay, we actually lost money if you include all the stuff I can't be bothered to type" seems remarkably pointless.
I suppose saying "we plan to double your money" sounds good, and those with short attention spans won't think about the difference between gross and net margins?
I have seen this before. There are inter-dependencies so when you cancel a low-margin product it will impact your high-margin product. The marketing people do not know about that, also they will feed you all the optimistic projections you want - with a product 2 years out (they won't be there in 2 years).
Also this philosophy does not help engineering morale, you need to be challenging the engineers in the right way.
financial engineering "innovation".
Maybe there really is a plan there, and finance-speak is the same for both, but I'd be more confident if they were discussing customers and products rather than margins ( and having written that, I'm having a Dilbert flashback ).
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